Lack Of Direction

• The FBM KLCI (-0.3%) drifted lower after lingering in the negative territory for most of the trading session yesterday on the renewed volatility of crude oil prices, coupled with signs of profit taking activities. The lower liners – the FBM Small Cap (-2.0%) and FBM Fledgling (- 0.7%) and FBM Ace (-0.9%) all fell, while the negative broader market closed mostly lower.

• Market breadth stayed negative as decliners hammered advancers on a ratio of 674-to-285 stocks. Traded volumes, however, added 0.8% to 2.64 bln shares amid the escalating profit taking activities.

• Petronas Dagangan (-RM1.60) led the local bourse decliners list, followed by Nestle (-50.0 sen), KLK (-22.0 sen), Press Metal (-13.0 sen) and Hartalega (-12.0 sen). Leading the decliners list on the broader market were consumer products stocks like Dutch Lady (-RM1.00), BAT (- 56.0 sen), Heineken (-44.0 sen), Carlsberg (-34.0 sen) and Ajinomoto (-20.0 sen).

• Notable advancers on the broader market include plantation stocks like Batu Kawan (+46.0 sen), United Plantations (+44.0 sen) and PLS Plantations (+12.0 sen), while Tan Chong Motors and APM Automotive climbed 20.0 sen and 17.0 sen respectively after delivering strong sets of corporate earnings. Meanwhile, Hong Leong Financial Group (+28.0 sen) MISC (+10.0 sen), Petronas Chemicals (+9.0 sen), Genting (+4.0 sen) and CIMB (+4.0 sen) advanced on the FBM KLCI.

• Asia stockmarkets staged a pullback as the Nikkei (-0.4%) erased all its intraday gains after the Japanese Yen advanced against the Greenback. The Shanghai Composite slipped 0.7%, while the Hang Seng Index closed 0.6% lower as investors remain wary over the U.S. and China trade talks. ASEAN stockmarkets, meanwhile, closed mostly lower yesterday.

• U.S. stockmarkets edged lower overnight after enduring a choppy trading session as the Dow fell 0.1% on a mixed bag of economic data. On the broader market, the S&P 500 slipped 0.1%, dragged down by the basic materials sector (-0.6%), while the Nasdaq also closed 0.1% lower.

• Earlier, major European indices edged higher as the CAC and DAX rose 0.1% and 0.3% respectively after clawing their way into the positive territory in the eleventh trading hour. The FTSE (-0.5%), however, retreated after the British Pound advanced on the potential Brexit delay.

The Day Ahead

• Stocks on Bursa Malaysia lost steam yesterday to leave some of its recent gains undone. As it is, fresh buying interest has evaporated amid a string of mostly mixed corporate results that also provided few buying impetuses. At the same time, gains in overseas equities are also tapering, leaving a more cautious undertone on local stocks.

• Consequently, we think Malaysian stocks are likely to continue drifting over the near term, as with the downside bias, with most market players still staying tentative. With the 1,720 level giving way, the supports are now at the 1,715 and 1,710 levels. The resistances are at 1,725 and 1,730 points respectively.

• The lower liners and broader market shares are also retreating on an overdue consolidation that we see continuing as they adjust from their bout of overbought. Also, rotational plays are dwindling as many stock prices are still perched in the expensive territory. COMPANY UPDATE

• OCK Group Bhd’s 4Q2018 net profit declined marginally by 0.8% Y.o.Y to RM6.9 mln, dragged down by higher losses recorded in the green energy and power solution segment. Revenue for the quarter, however, improved marginally by 0.1% Y.o.Y to RM134.5 mln.

• For 2018, cumulative net profit fell 2.3% Y.o.Y to RM24.1 mln. Revenue for the period decreased 7.1% Y.o.Y to RM457.4 mln. The reported earnings came below our expectations, making up to 87.6% of our previous net profit of RM27.5 mln in 2018. The reported revenue, however, came slightly above expectations, making up to 102.5% of our estimated revenue of RM446.4 mln.

• The variance in the bottom line is mainly due to the higher finance cost, coupled with the higher-than-expected effective tax rate at 31.8% vis-à-vis our forecast of 28.5%.

Comments

• With the 4Q2018’s results coming below our expectations, we trimmed our earnings forecast for 2019 and 2020 by 10.4% and 7.1% to RM29.4 mln and RM34.8 mln respectively to account for the higher finance cost and the higher effective tax rate. Nevertheless, we maintain our BUY recommendation on OCK, but with a lower target price of RM0.75 (from RM0.80).

• We adopt a sum-of-parts (SOP) approach as we valued its telecommunication network services and green energy & power solutions business segments on a discounted cash flow approach (key assumptions include a WACC of 9.5%, terminal growth rate of 1.5%) to reflect its ability to generate recurring revenues and steady earnings growth over the longer term. Meanwhile, we ascribed an unchanged target PER of 13.0x to both its fully-diluted trading and mechanical & electrical engineering services businesses, based on their potential earnings contribution in 2019.

• HIL Industries Bhd’s (HIL) 4Q2018 net profit jumped 94.0% Y.o.Y to RM6.8 mln, compared to RM3.5 mln a year ago, mainly due to strong margins in-tandem with higher property sales. Revenue also gained 21.7% Y.o.Y to RM35.7 mln, from RM29.3 mln in the same period in 2017.

• Consequently, full-year net profit grew 26.4% Y.o.Y to RM4.4 mln, from RM3.5 mln last year – led by improvements in both its property and manufacturing segment. Revenue, however, only moved incrementally higher to RM105.4 mln (+3.2% Y.o.Y), from RM102.2 mln in 2017. On the back of its stellar performance, the group has also proposed a first and final single tier dividend of 1.75 sen per share, payable at a date to be fixed later.

Comments

• The latest net profit and revenue outperformed our expectations, accounting to 120.6% of our full year net profit estimates of RM14.1 mln, while revenue came in at 106.4% of our forecast turnover of RM99.1 mln. The unexpected results were mainly due to higher progress billings from the property segment in the fourth quarter and lowerthan-expected depreciation charges.

• We increased our FY19 forecast net profit and revenue by 28.8% and 9.4% to RM22.8 mln and RM128.1 mln respectively, taking cue from the upbeat 2018 earnings. The increase will be driven by slightly higher recognition of property sales from its new launches, mainly Kemuning 108, Amverton Greens and Amverton Links, as well as higher orders from Perodua (for Myvi and Aruz).

• Even so, we reiterate our HOLD recommendation on HIL Industries Bhd with an unchanged target price of RM0.70 due to still persistently weak property landscape in Malaysia. As the majority of the bottomline margins is dependent on the performance of the property segment, we concur that more evidence of a solid recovery is needed before we can justify an upgrade to HIL’s share recommendation.

• Our target price is based on SOP approach, with an unchanged target PER of 9.0x to its 2019 manufacturing business and a discount of 50% (unchanged) to the revalued net asset value (RNAV) estimate of HIL’s property unit.

• AWC Bhd has posted a 38.4% Y.o.Y increase in 2QFY19 net profit to RM7.0 mln, compared to RM5.1 mln previously, in-tandem with the consolidation of earnings from Trackwork (pretax profit: RM3.1 mln) as well as improved earnings from the IFM and Environment segment. Revenue also gained 25.7% Y.o.Y to RM85.9 mln, from RM68.4 mln in 2QFY18.

• Cumulative 1H2018 net profit also expanded 29.2% Y.o.Y to RM13.1 mln, from RM10.1 mln last year, owing to higher turnover from all its segment and significant earnings bump from Trackwork. Revenue, meanwhile, rose 14.8% Y.o.Y to RM154.4 mln, compared to RM134.6 mln earlier.

Comments

• AWC’s revenue were more or less within our forecast, making up about 54.6% of our expected full year revenue of RM250.7 mln. However, the net profit were below our expectations, accounting for only 44.7% of our full year net profit of RM26.9 mln. Even so, we leave our forecast unchanged, pending AWC’s analysts’ briefing later.

• For now, we maintain our BUY call on AWC with an unchanged target price of RM1.00 as we remain positive on AWC’s long-term earnings accretion from newly secured contracts and fresh earnings from its rail maintenance services. 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.

• Chin Well Holdings Bhd’s 2QFY19 net profit inched 2.0% Y.o.Y higher to RM15.7 mln, compared to RM15.4 mln in 2QFY18, in-tandem with the increase in revenue to RM165.1 mln (+2.9% Y.o.Y), from RM160.5 mln last year. The group has also declared a single tier dividend of 4.5 sen per share (2QFY18: 3.9 sen), payable on 21st May 2019.

• Consequently, cumulative 1HFY19 net profit also gained 14.6% Y.o.Y to RM33.6 mln vs. RM29.3 mln in the previous corresponding year, while revenue rose 14.4% Y.o.Y to RM341.5 mln, from RM298.5 mln in 1HFY18.

Comments

• The net profit and revenue were within our forecast, accounting to 54.2% and 51.4% of our full year estimates of RM62.0 mln and RM664.1 mln respectively. With that in mind, we only made minor adjustments in our forecast FY19 and FY20 net profit to RM63.6 mln (+2.6%) and RM69.5 mln (+6.4%) respectively after imputing higher margins for the wire rod division, as well as increased net interest expense.

• We maintain our recommendation on Chin Well at a BUY with a higher target price of RM1.95 (up from RM1.90) as we continue to see growth potential in Chin Well’s bottomline following improving margins on better product mix (i.e.: wire rod products) Our target price is arrived by ascribing an unchanged target PER of 9.0x to its FY19 EPS of 21.6 sen.

• The target PER is at a small premium to PER of its closest peer, Tong Herr Resources Bhd, premised on Chin Well’s higher margins and the positive growth outlook in the fasteners landscape in Europe.

COMPANY BRIEF

• Genting Plantations Bhd’s 4Q2018 net profit plunged 87.6% Y.o.Y to RM14.3 mln, from RM115.4 mln a year earlier, dragged down by lower selling prices for its palm products. Revenue also contracted 8.7% Y.o.Y to RM482.3 mln, from RM528.4 mln in the year-ago fourth quarter.

• For the full year, the group’s net profit halved to RM164.9 mln against RM335.09 mln in 2017, although revenue grew 5.2% Y.o.Y to RM1.9 bln, from RM1.81 bln in the previous year. Moving forward, FFB production is expected to be on the rise due to higher crop output from its Indonesia operations and additional areas coming into maturity and better age profile. Despite weak earnings, Genting Plantations has recommended a final single tier dividend of 8.25 sen per share. (The Edge Daily) IOI Properties Group Bhd's 2QFY19 net profit more than doubled to RM214.9 mln, from RM97.5 mln last year, on lower cost of sales and as a result of the group’s JV turning to profitable. Revenue for the quarter, however, declined 4.2% Y.o.Y to RM666.2 mln, from RM695.4 mln a year earlier.

• For the cumulative 1HFY19, however, IOI Properties’ net profit dropped 4.6% Y.o.Y to RM326.8 mln, from RM342.6 mln a year ago, on the back of higher taxes, while revenue also fell to RM281.3 mln (-29.1% Y.o.Y), from RM396.8 mln earlier. (The Star Online)

• Petronas Dagangan Bhd's 4Q2018 net profit plunged 83.0% Y.o.Y to RM46.7 mln vs. RM278.6 mln a year earlier due to a significant decline in petroleum product prices, although revenue rose 10.0% Y.o.Y to RM7.9 bln, from RM7.16 bln a year ago.

• For the full year, net profit fell 45.0% Y.o.Y to RM849.9 mln, in comparison to RM1.54 bln in the previous year, while revenue rose 10.0% Y.o.Y to RM30.07 bln, from RM27.42 bln in 2017. The group remains cautious of the challenging landscape ahead given the continued volatility of oil price and introduction of weekly fuel prices. The board has declared a final interim dividend of 25.0 sen per share, payable on 28th March, 2019. (The Edge Daily)

• Damansara Realty Bhd (DBhd) announced that Putrajaya Corp has cancelled a project to build 1Malaysia Civil Servants Housing (PPA1M) units and related commercial components in Precinct 5, due to the Government’s move to unify the development of affordable homes under the Ministry of Housing and Local Government.

• Other than costs incurred for the work done since the project started which are claimable, the group said the decision would not have any significant impact on the group’s earnings or net assets per share.

• To recap, the group has signed the agreement with Putrajaya Corp to develop a project comprising 1,350 residential units and 45 commercial units at a gross development cost of RM467.3 mln on 30th November 2015. (The Edge Daily)

• Ann Joo Resources Bhd's 4Q2018 net profit narrowed 40.5% Y.o.Y to RM33.0 mln, from RM55.5 mln same quarter last year, due to squeezed margins and write-down of inventories. Revenue, however, rose 10.7% Y.o.Y to RM675.7 mln, from RM610.2 mln a year ago. The group has declared a second interim dividend of 6.0 sen per share, payable on 24th May 2019.

• Full year net profit was 27.2% Y.o.Y lower at RM149.5 mln, from RM205.4 mln previously, despite a 5.8% Y.o.Y growth in revenue at RM2.32 bln compared with RM2.2 bln in 2017 due to heightened competition. (The Edge Daily)

• Parkson Holdings Bhd remained in the red despite improvements in its Malaysian retailing operations, with 2QFY19 net loss widening to RM37.6 mln, from RM13.9 mln in the year-ago quarter. Revenue, meanwhile, flatlined at RM1.05 bln, compared to RM1.06 bln last year.

• Cumulative 1HFY19 net loss also widened to RM80.6 mln (+40.4% Y.o.Y), from a 1HFY18 net loss of RM57.4 mln previously, while revenue was little changed at RM1.98 bln (-0.2% Y.o.Y). Parkson expects its retail division to benefit from the seasonally higher consumer spending during the Chinese New Year festivities in February. (The Star Online)

• SKP Resources Bhd’s 3QFY19 net profit declined 22.6% Y.o.Y to RM23.3 mln, from RM30.1 mln in the last corresponding quarter, in-line with lower revenue contribution, which fell 22.9% Y.o.Y at RM400.0 mln, from RM518.7 mln before.

• For the cumulative 9MFY19, net profit also decreased 21.6% Y.o.Y to RM77.2 mln, from RM98.5 mln in the previous corresponding period. Revenue, meanwhile, fell 20.1% Y.o.Y to RM1.31 bln, from RM1.64 bln last year. (The Edge Daily)

• 7-Eleven Malaysia Holdings Bhd’s 4Q2018 net profit slipped 21.3% Y.o.Y to RM12.5 mln, from RM15.9 mln in 4Q2017 on the back of lower operating income. Revenue for the quarter, however, was slightly higher at RM554.3 mln (+1.5% Y.o.Y), from RM546.2 mln earlier.

• For the full year, group net profit was marginally higher by 2.4% Y.o.Y to RM51.3 mln, from RM50.1 mln in the previous corresponding year, while revenue rose 1.3% Y.o.Y to RM2.22 bln, from RM2.19 bln in 2017.

• The group expects trading conditions for the next quarter to improve, driven by domestic demand and anticipated heightened consumer sentiment. (The Edge Daily)  

Source: Mplus Research - 27 Feb 2019