Still Overbought, Consolidation May Persist

• Tracking the renewed weakness on Wall Street overnight, the FBM KLCI (-0.5%) snapped a four-day winning streak on profit taking activities last Friday. Still, the FBM KLCI march 1.9% higher W.o.W – the biggest weekly gain since July 2018. The lower liners – the FBM Small Cap (-0.8%), FBM Fledgling (-0.2%) and FBM Ace (-1.2%) all retreated, while the REIT sector (+0.1%) outperformed the negative broader market.

• Market breadth turned negative as decliners overturned advancers on a ratio of 611-to-290 stocks. Traded volumes fell 28.1% to 2.67 bln shares amid the negative market sentiment.

• Two-thirds of the key index constituents fell, dragged down by Nestle (-90.0 sen), followed by Petronas Dagangan (-38.0 sen), Top Glove (-27.0 sen), PPB Group (- 18.0 sen) and Hong Leong Bank (-16.0 sen). Petron Malaysia (-60.0 sen) sank after unexpectedly slipped into net loss in 4Q2018, while other notable decliners on the broader market include BAT (- RM1.00), MPI (-22.0 sen), Air Asia (-16.0 sen), Far East Holdings (-15.0 sen) and Formosa Prosonic Industries (-15.0 sen).

• In contrast, Fraser & Neave (+54.0 sen), Allianz (+48.0 sen), Dutch Lady (+42.0 sen), Apex Healthcare (+20.0 sen) and Manulife (+12.0 sen) topped the broader market’s winner list. Key winners on the local bourse were Malaysia Airport Holdings (+5.0 sen), AmBank (+3.0 sen), Press Metal (+2.0 sen), RHB Bank (+2.0 sen) and Maybank (+1.0 sen).

• Japanese stockmarkets halted a four-day winning streak, taking cue from the weakness on Wall Street the night before. The Shanghai Composite, however, jumped 1.9% to close above the 2,800 psychological level on optimism over the U.S.-China trade talks, while the Hang Seng Index finished 0.7% higher. The majority of the ASEAN stocks ended lower last Friday.

• The optimism over U.S.-China trade deal powered U.S. stockmarkets higher as the Dow (+0.7%) closed above the 26,000 psychological level. Consequently, the Dow added 0.6% W.o.W to mark its ninth consecutive weekly winning streak – the longest stretch in almost 24 years. On the broader market, both the S&P 500 and Nasdaq climbed 0.6% and 0.9% respectively.

• Earlier, major European indices – the FTSE (+0.2%), CAC (+0.4%) and DAX (+0.3%) all advanced after the Euro Currency weakened against the Greenback, coupled with the trade optimism between U.S. and China. Meanwhile, Eurozone’s inflation in January 2019 rose 1.4% Y.o.Y, in line with economists’ expectations.

The Day Ahead

• Even as stocks on Bursa Malaysia endured a bout of profit taking last Friday, the market’s condition remains toppish. As it is, most technical indicators still perched in the overbought territory and we think that the consolidation is likely to persist for now, despite the gains in overseas equity markets at the end of last week. For now, the 1,720 level is the immediate support, followed by the 1,710 level. The resistances are at 1,730-1,740 levels.

• After the recent runup, the FBM KLCI’s valuation at 16.7x for 2019 is inching closer to the upper range of its long-term average at 17.0x. Therefore, we think that further upsides are more difficult to come by as earnings growth prospects remains indifferent due to the slower global and domestic economic environments. With more corporates reporting their earnings over the coming week, a better prognosis of their earnings prospects could be determined in due course.

• The lower liners and broader market shares are also undergoing an overdue consolidation from overbought that we see continuing over the near term. The pullback is deemed healthy as it would allow the recent strong gains to be digested.

Company Update

• AWC Bhd was awarded a contract worth RM29.9 mln by Lendlease Projects (M) Sdn Bhd for a proposed commercial mixed development at Jalan Tun Razak/Jalan Davis in Kuala Lumpur. The proposed commercial mixed development includes four levels of shopping complex, three levels of car park, one level open landscape with retail space and one information centre and a future development plot. The contract will commence immediately until 21st June 2021.

• The new contract has also bumped AWC’s outstanding orderbook to more than RM1.0 bln

Comments

• We are positive on the news but as the contract value is still within our annual orderbook replenishment target hence, we leave our forecast unchanged for now until AWC’s 2QFY19 quarterly results is released on 26th February 2019. We reiterate our BUY recommendation on AWC with an unchanged target price of RM1.00 as we remain positive on AWC’s long-term earnings accretion prospects from ongoing projects. Our target price is based on a target PER of 10.0x to AWC’s FY19 EPS of RM10.1 sen.  Our target PER remain at a discount to its closest peer, UEM Edgenta Bhd, mainly due to AWC’s smaller market capitalisation.

• SLP Resources Bhd’s 4Q2018 net profit surged slightly more than 50.0% Y.o.Y to RM7.3 mln, compared to RM4.8 mln in the previous corresponding quarter. The favorable results were mainly attributed to higher export sales and lower tax charges, which offset higher depreciation expenses following the completion on the new blown film line. Revenue also grew 5.1% Y.o.Y to RM47.4 mln, from RM45.1 mln last year.

• Consequently, full year net profit rose 31.4% Y.o.Y to RM25.3 mln vs. RM19.2 mln a year ago, driven by: i) higher export and local sales, ii) increased production volume, iii) lower tax expenses and a net forex gain of 0.6 mln vs. a net forex loss of 1.1 mln previously. Revenue, meanwhile, improved slightly to RM188.1 mln (+4.4% Y.o.Y), from RM180.7 mln in 2017.

• The full-year results came in within expectations, accounting to 105.4% and 100.5% of our forecast net profit and revenue respectively. As such, we leave our forecasts unchanged until further updates from the management in the upcoming analysts’ briefing. The group has also declared a third interim dividend of 1.5 sen per share (YTD: 4.5 sen), payable on 5th April 2019.

Comments

• We leave our 2019 forecasts largely unchanged and introduce our 2020 net profit and revenue assumptions of RM33.3 mln and RM239.0 mln respectively.

• We reiterate our HOLD recommendation on SLP Resources Bhd with an unchanged target price of RM1.30 by ascribing an unchanged PER of 15.0x to its FY19 EPS of 8.7 sen as we think that the current share price has already priced in SLP’s near-term growth prospects.

• The assigned PER is higher than its closest peer, Thong Guan Industries Bhd which we think is justifiable due to SLP’s stronger growth prospects and superior double-digit margins.

COMPANY BRIEF

• MISC Bhd's 4Q2018 net profit soared to RM338.7 mln, from RM68.2 mln a year earlier, despite weaker revenue at RM2.39 bln, from RM2.47 bln last year. The group has declared a dividend of 9.0 sen per share totalling, payable on 26th March, 2019.

• Full year net profit also slipped 33.8% Y.o.Y to RM1.31 bln, from RM1.98 bln a year earlier, in-tandem with lower revenue contribution of RM8.78 bln vs. RM10.07 bln in 2017. (The Edge Daily)

• Malakoff Corp Bhd‘s 4Q2018 net profit surged 188% Y.o.Y to RM85.5 mln, from RM29.7 mln last year, on stronger revenue mainly due to higher payment from electricity generation at its Tanjung Bin Power Sdn Bhd (TBP) and Tanjung Bin Energy Sdn Bhd (TBE) coal power plants. The group posted revenue of RM1.89 bln, from RM1.79 bln a year ago.

• Cumulative net profit in 2018, however, fell to RM274.4 mln, from RM295.9 mln a year earlier despite improved revenue at RM7.35 bln, compared to RM7.13 bln in the previous year. The lower bottomline was mainly attributed to higher cost of sale. (The Star Online)

• Petra Energy Bhd posted a turnaround with a 4Q2018 net profit of RM20.9 mln, from a net loss of RM46.5 mln in the previous corresponding quarter, intandem with 62.0% Y.o.Y gain in revenue to RM191.8 mln, from RM118.4 mln in the previous year.

• Full year net loss also narrowed by more than half to RM21.0 mln, from a net loss of RM46.0 mln in the previous year, while revenue inched up by 1.6% Y.o.Y to RM467.4 mln, from RM460.2 mln in 2017. (The Edge Daily)

• Malaysia Smelting Corp Bhd (MSC) posted a net profit of RM15.6 mln in 4Q2018 vs. a net loss of RM13.2 mln a year ago, despite revenue coming in 9.7% Y.o.Y lower at RM287.7 mln, from RM318.5 mln previously. Meanwhile, for the full year, 2018 net profit more than doubled to RM34.3 mln, from RM16.1 mln last year after its tin smelting segment returned to profitability. Revenue, however, was down 10.8% Y.o.Y to RM1.28 bln. (The Edge Daily)

• Dayang Enterprise Holdings Bhd returned to the black after posting a 4Q2018 net profit of RM97.7 mln, from a net loss of RM55.2 mln in the same quarter las year, on higher work orders received and performed under its topside maintenance contracts. Quarterly revenue also jumped 64.9% Y.o.Y to a record high of RM285.7 mln.

• For the full financial year 2018, the group recorded a net profit of RM164.2 mln, compared to a net loss of RM144.9 mln, in-tandem with stronger revenue (+34.9% Y.o.Y) performance at RM937.6 mln, from RM695.0 mln in 2017. (The Edge Daily)

• Axiata Group Bhd posted a net loss of RM1.66 bln in 4Q2018, from a net profit of RM24.7 mln a year ago, on the back of several one-off, non-cash, technical items. The one-off expenses includes a RM3.9 bln losses recorded by Idea Cellular, a RM1.8 bln asset write-off as a result of network modernisation at PT XL Axiata Tbk and Celcom Axiata Bhd as well asd foreign exchange and derivatives losses of RM0.5 bln. Quarterly revenue rose marginally to RM6.27 bln, from RM6.26 bln a year earlier.

• In 2018, cumulative net loss stood at RM5.03 bln, vs. a net profit of RM909.5 mln reported in the preceding year, while revenue fell to RM23.9 bln, from RM24.4 bln in 2017. (The Star Online)

• The external auditor of London Biscuits Bhd has expressed a qualified opinion on the group’s FY18 financial statements as it is wary of the group’s physical inventories held at 30th September 2018. The auditor also reviewed certain opening balances that contained misstatements that may materially affect the current period’s financial statements.

• Another concern identified was the group’s recognition of an impairment of trade receivables of about RM2.0 mln for FY18 and the retrospective adjustment of RM60.4 mln to comply with the impact of the group’s early adoption of MFRS 9. (The Edge Daily)

• Eastern & Oriental Bhd (E&O) posted a 3QFY19 net loss of RM8.8 mln, compared to a net profit of RM22.0 mln a year ago, mainly due to an unrealised forex loss of RM11.6 mln as well as an estimated one-off RM44.6 mln holding cost payable for the option to purchase land, which was not exercised. Quarterly revenue also fell 22.6% Y.o.Y to RM257.0 mln, from RM331.9 mln in 3QFY18.

• The weak quarterly performance dragged down the group's cumulative 9MFY19 net profit down to RM24.2 mln (-61.6% Y.o.Y), from RM62.9 mln a year ago, while revenue fell 9.3% Y.o.Y to RM636.3 mln, from RM701.2 mln in 9MFY18. (The Edge Daily)  

Source: Mplus Research - 25 Feb 2019