Nowhere To Go

• The FBM KLCI (+0.2%) rebounded after recovering all its intraday losses, boosted by buying support in selected index heavyweights in the eleventh hour of the trading session. The lower liners edged mostly higher as the FBM Small Cap and FBM Fledgling rose 0.2% each, while the broader market closed mixed.

• Market breadth stayed negative as decliners overpowered advancers on a ratio of 481-to-386 stocks. Traded volumes fell 1.9% to 2.62 bln shares as investors turned cautious after the previous week’s run-up.

• Petronas Dagangan (+RM1.60) led the local bourse advancers list, followed by Malaysia Airport Holdings (+26.0 sen), KLK (+20.0 sen), Petronas Chemicals (+13.0 sen) and Hong Leong Bank (+6.0 sen). Significant advancers on the broader market were KESM Industries (+33.0 sen), Heineken (+30.0 sen) and SAM Engineering & Equipment (+24.0 sen). Oil & gas stocks like Petra Energy and Dayang jumped 30.0 sen and 22.5 sen respectively after returning to the black in the latest quarterly earnings.

• Litrak and Gamuda sank 43.0 sen and 18.0 sen respectively on the government’s plan to take over their toll roads, while other notable decliners on the broader market include BAT (- RM1.04), Carlsberg (-34.0 sen) and Petron Malaysia (-23.0 sen). Meanwhile, PPB Group (-20.0 sen), Hong Leong Financial Group (-18.0 sen), Genting (- 11.0 sen), Axiata (-8.0 sen) and IHH Healthcare (-5.0 sen) were the biggest losers on the FBM KLCI.

• Asia stockmarkets rallied after U.S. President Donald Trump decided to suspend new tariffs on Chinese goods that are scheduled to take effect on 1st March 2019 after both parties made substantial progress on their on-going trade talks. The Shanghai Composite surged 5.6% to close above the 2,900 psychological level. Both the Hang Seng Index and Nikkei climbed 0.5% each as the latter closed at its highest level in ten week. The majority of ASEAN stocks started off the week on a solid footing.

• U.S. stockmarkets extended their gains as the Dow climbed another 0.2% after U.S. President Donald Trump has confirmed that the new tariff imposition on 1st March 2019 will be delayed. On the broader market, the S&P 500 gained 0.1%, while the Nasdaq finished 0.4% higher.

• Earlier, major European indices – the FTSE (+0.1%), CAC (+0.3%) and DAX (+0.4%) all extended their gains as investors monitored the on-going trade talks between U.S. and China. Meanwhile, political uncertainties over Brexit remains after Prime Minister Theresa May delayed another key vote on her Brexit deal.

The Day Ahead

• Although market breadth was negative yesterday, the key index managed to post a positive close yesterday amid the surge in regional stocks that were buoyed by the improved prospects of a trade agreement between the U.S. and China.

• With the positive close, the FBM KLCI remains overbought and near term upsides will again be limited as a consequence. In addition, valuations are tethering near the upper range of its historical average that could further limit its near term upsides, in our view. Therefore, we think that the key index could instead take a sideway route until there is a new direction, leaving the key index to linger within the 1,720 and 1,730 levels for now.  The lower liner and broader market indices also remain overbought despite the mild bouts of intraday consolidation and we see the trend continuing for now as rotational plays are still taking place.

Company Update

• Econpile’s 2QFY19 net loss stood at RM34.4 mln vs. a net profit of RM22.7 mln recorded in the previous corresponding quarter, impacted by losses on project cost rationalisation and changes in the design/scope of works in two infrastructure projects, cost overrun for a piling and foundation works for a property project and impairment of trade receivable on a particular debtor. Revenue for the quarter slipped 8.6% Y.o.Y to RM148.2 mln, dragged down by depleting outstanding orderbook.

• For 1HFY19, cumulative net loss stood at RM19.4 mln vs. a net profit of RM43.9 mln recorded in the previous corresponding period. Revenue for the period, however, rose 5.3% Y.o.Y to RM348.5 mln. The reported earnings came below our expectations of RM60.5 mln for FY19. The reported revenue, however, came within our expectations, amounting to 49.1% of our full-year forecast of RM709.2 mln. The variance in the bottom line is mainly due to the variation orders, cost overrun and impairment of its trade receivables.

Comments

• With the reported earnings falling short of our forecast, we slashed our net profit forecast by 85.8% and 18.7% to RM8.8 mln and RM45.9 mln for FY19 and FY20 respectively to account for the losses that stems from the variation of work orders, impairment of trade receivables and the one-of cost overrun in the piling and foundation of a property development project for FY19.

• We maintain our HOLD recommendation on Econpile, but with a lower target price of RM0.45 (from RM0.65) as we rolled over our valuation metrics to FY20 by ascribing a target PER of 13.0x to its revised FY20 EPS of 3.4 sen. We, however, continue to like Econpile as a niche construction company, specialising in piling and foundation works, backed by its solid unbilled orderbook of RM1.00 bln that will sustain its earnings over the next two years.

COMPANY BRIEF

• Gamuda Bhd has confirmed today that it is negotiating with the Government for the proposed takeover of four highway concessions and any takeover of its highway concessions is in line with market valuation norms and practices. (The Edge Daily)

• Malaysian Bulk Carriers Bhd (Maybulk) has reported a record high 4Q2018 net profit of RM406.4 mln, from a net loss of RM73.2 mln last year — boosted by gain on disposal of associate and reduced loss from associate. Revenue, however, was 3.5% Y.o.Y lower at RM69.0 mln, from RM71.5 mln in the same period last year.

• For the full financial year, net profit also hit its highest since 2008 at RM263.8 mln, compared to a net loss of RM135.0 mln a year ago, while revenue contracted 12.3% Y.o.Y to RM239.0 mln, from RM272.6 mln in 2017.

• The group noted that sentiments in the freight market have turned bearish amid the slowing global economy and the dry bulk fleet is expected to grow at a lower 3.0% this year which should then provide better resilience to overall freight market fundamentals. (The Edge Daily)

• Apex Equity Holdings Bhd’s shareholder, Concrete Parade Sdn Bhd is suing the stock-broking company concerning its proposed merger deal with Mercury Securities Sdn Bhd and corporate exercises, including a share buy-back exercise in the past.

• The group has been served an originating summons (OS) on 25th February along with 15 others, including Apex’s board of directors, Apex’s wholly-owned subsidiary JF Apex Securities Bhd, Mercury Securities Sdn Bhd and seven individuals, by Concrete Parade, which has a 4.7% stake in the company. (The Edge Daily)

• Tan Chong Motor Holdings Bhd posted a 4Q2018 net profit of RM51.6 mln, from a net loss of RM7.2 mln earlier, in-line with the growth in its quarterly revenue (+8.5% Y.o.Y) at RM1.17 bln, from RM1.08 bln last year. The group has also declared a final dividend of two sen per share.

• The group also made a its first full profitable year after two loss-making years, after posting a full year profit of RM101.0 mln vs. a net loss of RM88.6 mln last year. Revenue also gained 11.9% Y.o.Y to RM4.86 bln, from RM4.34 bln previously.

• The group expects the domestic automotive industry to be subdued in FY19, as new vehicles' sales remain soft due to cautious consumer sentiment on big ticket items as well as continued strict financing approval guidelines. (The Star Online)

• Karex Bhd‘s 2QFY19 net profit fell 55.9% Y.o.Y to RM1.4 mln, from RM3.2 mln a year ago, despite a 2.7% Y.o.Y in revenue to RM113.6 mln, from RM110.5 mln in 2QFY18. The weakness in net profit were mainly due to a less favourable sales mix  Cumulative 1HFY19 net profit also fell 54.3% Y.o.Y to RM3.4 mln, from RM7.4 mln a year ago, while revenue retreated 5.7% Y.o.Y to RM205.7 mln, from RM218.1 mln previously. (The Edge Daily)

• Sunway Construction Group Bhd’s (SunCon)’s 4Q2018 net profit jumped 26.6% Y.o.Y to RM36.6 mln, compared to RM28.9 mln last year, helped by increased profit margin. Revenue, however, fell 16.3% Y.o.Y to RM626.0 mln against RM748.2 mln a year ago. The group has also declared a second interim single tier dividend of 3.5 sen per share.

• Full year net profit, meanwhile, grew 9.4% Y.o.Y to RM144.7 mln vs. RM132.3 mln in 2017, in-tandem with revenue growth of 8.7% Y.o.Y to RM2.26 bln, from RM2.08 bln last year. Moving forward, the group aims to achieve RM1.5 bln new orders for FY19, higher than the RM1.6 bln new deals secured for its order book in FY18. (The Star Online)

• Lay Hong Bhd's 3QFY19 net profit plunged 63.0% Y.o.Y to RM3.8 mln, from RM10.1 mln a year ago, due to lower quantity of processed chicken products sold and the closure of one of the retail outlets in Papar, Sabah. Revenue also came in 10.9% Y.o.Y lower at RM203.3 mln, from RM228.2 mln previously.

• For 9MFY19, performance remains weak with a net loss of RM4.9 mln, compared to a net profit of RM26.7 mln in the previous corresponding period, while revenue fell 4.3% Y.o.Y to RM589.6 mln, from RM615.8 mln in the previous corresponding period. For the next few months, Lay Hong expects average egg price to remain at the current level. (The Edge Daily)

• Unisem (M) Bhd's 4Q2018 net profit declined 26.6% Y.o.Y to RM23.5 mln, from RM32.0 mln a year ago, dragged down by lower sales volume. Quarterly revenue also slipped 7.2% Y.o.Y to RM331.8 mln, from RM357.4 mln earlier.

• For full 2018, net profit came in 39.9% Y.o.Y lower at RM95.8 mln, from RM159.5 mln in 2017, while revenue dropped 7.8% Y.o.Y to RM1.35 bln, from RM1.47 bln in last year, mainly due to weaker USD. Even so, the group has proposed a final dividend of 3.0 sen per share. (The Star Online)  

Source: Mplus Research - 26 Feb 2019