Unchanged Outlook – Still Directionless

• Tracking the weakness on Wall Street overnight, the FBM KLCI (-0.3%) extended its losses after hovering in the negative territory for the entire trading session yesterday. The lower liners closed mostly higher as the FBM Fledgling and FBM Ace added 0.04% and 1.2% respectively, while the transportation & logistics (+0.9%), energy (+0.7%) and industrial products & services (+0.3%) sectors outperformed the negative broader market.

• Market breadth remained negative as decliners outnumbered advancers on a ratio of 481-to-364 stocks. Traded volumes fell 17.2% to 2.19 bln shares amid the negative market sentiment.

• More than half of the key index constituents fell, dragged down by Nestle (-50.0 sen), followed by Hong Leong Financial Group (-34.0 sen), Petronas Dagangan (-20.0 sen), Malaysia Airport Holdings (-18.0 sen) and KLK (-18.0 sen). Among the biggest decliners list on the broader market include BAT (-RM1.20), BAT (-56.0 sen), Batu Kawan (-40.0 sen), Fraser & Neave (-30.0 sen), KESM Industries (-17.0 sen) and Shangri-La (- 16.0 sen).

• In contrast, significant advancers on the broader market were Carlsberg (+50.0 sen), Vitrox (+28.0 sen) and Dutch Lady (+22.0 sen). Both Bintulu Port and Amway gained 19.0 sen and 16.0 sen respectively after reporting strong set of quarterly earnings. Key winners on the FBM KLCI were Press Metal (+5.0 sen), Petronas Chemicals (+4.0 sen), Petronas Gas (+4.0 sen), Tenaga (+4.0 sen) and Maybank (+3.0 sen).

• Asia benchmark indices closed mostly higher as the Nikkei gained 0.5%, on the positive sentiment in defensive stocks. The Shanghai Composite added 0.4% as authorities deepen reforms on financial markets to boost the cooling economy, but the Hang Seng Index slipped 0.2% after erasing all its intraday gains. ASEAN stockmarkets, meanwhile, closed mostly lower yesterday.

• U.S. stockmarkets closed mostly lower overnight as the Dow fell 0.3%, dragged down by geopolitical tension between India and Pakistan amid reports the Pakistani military shot down two Indian jets that had entered its airspace. On the broader market, the S&P 500 declined 0.1%, while the Nasdaq also closed 0.1% lower

• Earlier, major European indices – the FTSE (-0.6%), CAC (-0.3%) and DAX (- 0.5%), all ended in the red on escalating geopolitical tensions between Pakistan and India. In the meantime, the British Pound advanced after Prime Minister May offered lawmakers to vote on a nodeal Brexit or to postpone the U.K.'s impending departure from the European Union in two week time.

The Day Ahead

• There was little reprieve for Malaysian equities yesterday as it continues to stumble amid the lack of leads that also saw market following dwindling. We see the indifferent trend persisting for now as there is little change to the near term market outlook with the downside bias is still prevalent.

• As it is, fresh buying is increasingly scarce after the key index failed to clear the 1,730 level convincingly amid the prognosis of slowing economic prospects and toppish valuations. At the same time, corporate results have largely remained lackluster, thus providing few buying impetus for market players to follow. Hence, the 1,710 level is still vulnerable and if it gives way, the 1,700 points support will come into play. On the upside, the resistances are at 1,717 and 1,720 levels.

• The lower liners and broader market shares are still mixed with bouts of consolidation and the trend looks to persist due with few signs of a firmer brecovery as yet.

Company Update

• Engtex Group Bhd’s 4Q2018 net loss stood at RM7.0 mln vs. a net profit of RM12.1 mln recorded in the previous corresponding quarter, dragged down by: (i) increases in procurement cost for certain metal and steel products, (ii) increased operating costs arising from the start-up of two new manufacturing plants, and (iii) higher operating cost for the completed property development projects in Kepong and Selayang. Revenue for the quarter fell marginally by 0.4% Y.o.Y to RM308.5 mln.

• For 2018, cumulative net profit slumped 75.7% Y.o.Y to RM12.1 mln. Revenue for the year, however, grew 9.0% Y.o.Y to RM1.21 bln. The reported earnings fell short of our expectations, amounting to only 50.3% of our estimated net profit of RM24.0 mln. The reported revenue, however, came slightly above our expectations, accounting to 103.3% our full year revenue of RM1.17 bln.

• The lower-than-expected net profit was due to lower margins recorded in both the manufacturing and wholesale and distribution segments, higher finance cost and the higher effective tax rate at 45.9% vs. our forecast of 30.0%.

Comments

• With the reported earnings coming below our forecast, we slashed our earnings estimates by 34.2% and 10.7% to RM23.3 mln and RM34.2 mln for 2019 and 2020 respectively to account for the lower margins from the manufacturing segment, arising from the additional costs from the two new manufacturing plants.

• We also maintain our SELL recommendation on Engtex with a lower target price of RM0.60 (from RM0.80) amid the cut in its margins and the challenging operating environment.

• Our target price was derived from ascribing a unchanged target PER of 8.0x to our revised 2019 earnings forecast of its manufacturing and wholesale and distribution businesses, in line with its historical PER. Its property development segment’s valuation remains unchanged at 0.6x its BV due to its relatively smallscale property development projects, while its hospitality segment earnings is pegged to an unchanged PER of 6.0x to its 2019 earnings due to smaller contribution to the group.

• Mitrajaya Holdings Bhd’s 4Q2018 net profit slipped 41.7% Y.o.Y to RM10.0 mln, dragged down by lower contribution across all its business segments. Revenue for the quarter decreased 39.6% Y.o.Y to RM162.6 mln.

• For 2018, cumulative net profit contracted 44.5% Y.o.Y to RM44.6 mln. Revenue for the year slipped 28.0% Y.o.Y to RM838.4 mln. The reported earnings came below our expectations, amounting to 92.8% of our 2018 net profit forecast of RM48.0 mln, with revenue for the period also coming below our expectations, accounting to 87.5% of our RM958.5 bln forecast. The difference in both the top and bottomline is mainly due to lower contribution from the construction segment.

Comments

• We trimmed our earnings forecast for 2019 and 2020 by 2.2% and 4.5% to RM47.0 mln and RM32.9 mln respectively to account for the slower execution of construction works, margins compression in the construction segment and the sluggish property sales. Consequently, we maintain our HOLD recommendation on Mitrajaya, with a lower target price of RM0.34 (from RM0.35).

• Our target price is derived from a sum-ofparts valuation as we ascribed a target PER of 8.0x (unchanged) to its fully diluted 2019 construction earnings, while its local and overseas property development units are valued at 0.6x (down from 0.8x) of their respective book values. The additional discount to its book value is to reflect the slowdown in the general property development market.

• Protasco Bhd’s 4Q2018 net loss stood at RM44.6 mln vs. a net profit of RM8.7 mln in the previous corresponding quarter, mainly dragged down impairment losses from: (i) cost overrun in certain completed projects, (ii) provision of liquidated and ascertained damages, and (iii) impairment losses on receivables totalling RM41.6 mln. Revenue for the quarter slipped 17.8% Y.o.Y to RM257.8 mln.

• For 2018, cumulative net loss stood at RM48.5 mln vs. a net profit of RM28.1 mln recorded in the previous corresponding period. Revenue for the year declined 5.0% Y.o.Y to RM892.3 mln. The reported loss exceeded our 2018 net loss forecast of RM3.2 mln, whilst the reported revenue came above our expectations, amounting to 111.2% of our full year estimate of RM802.6 mln.

• Stripping off the one off impairment losses, Protasco’s pretax profit would amount to RM17.8 mln – within our expectations.

Comments

• With the reported earnings coming below our estimates, we slashed our earnings forecast by 18.5% and 5.7% to RM20.4 mln and RM19.8 mln for 2019 and 2020 respectively. Our lower earnings assumption reflects the slower execution in both the construction and maintenance segments, coupled with margins compression due to higher overhead costs. Consequently, we downgrade Protasco to HOLD (from Buy), with a lower target price at RM0.25 (from RM0.52).

• We arrive our target price on a sum-ofparts basis by ascribing an unchanged target PER of 8.0x to its 2019 fully diluted construction earnings as well as a target PER of 8.0x (unchanged) to its fully diluted 2019 concession and engineering services’ earnings. Its education and trading units’ valuations remain pegged at target PERs of 6.0x respectively due to their smaller scale businesses, while its property development division’s valuation is derived from ascribing an unchanged 0.6x to its BV.

COMPANY BRIEF

• MAA Group Bhd’s major shareholders, Melewar Acquisitions Ltd and Melewar Equities (BVI) Ltd and persons acting in concert, have requested for MAA to undertake a selective capital reduction and repayment exercise. The Melewar Group, who holds a collective 38.7% equity stake, is looking to take MAA private at RM1.10 per share. The offer price represents a premium of three sen over MAA’s highest traded market price since MAA was designated a PN17 company. (The Edge Daily)

• AirAsia Bhd slipped into the red with a 4Q2018 net loss of RM395.0 mln, from a net profit of RM372.7 mln a year earlier, on higher fuel prices and operating lease expenses, despite revenue growing to RM2.82 bln (+6.2% Y.o.Y), from RM2.66 bln last year.

• Full-year net profit, however, rose 21.5% Y.o.Y to RM1.98 bln, from RM1.63 bln in 2017, while revenue rose 9.2% Y.o.Y to RM10.6 bln vs. RM9.71 bln previously. (The Star Online)

• Genting Malaysia Bhd’s 4Q2018 net profit jumped 60.1% Y.o.Y to RM720.1 mln, from RM449.8 mln in 4Q2017, on lower effective tax rate, despite slightly weaker quarterly revenue of RM2.51 bln (-1.47% Y.o.Y), from RM2.54 bln in 4Q2017.

• Even so, the group posted a net loss of RM19.6 mln in 2018 — its first annual loss since 2000 — on higher impairment losses. Revenue, on the other hand, rose 6.4% Y.o.Y to RM9.93 bln, from RM9.33 bln in 2017. It proposed a special dividend of 8.0 sen per share and a final dividend of 5.0 sen per share. (The Edge Daily)

• Genting Bhd’s net profit jumped nearly five times to RM655.2 mln in 4Q2018, from RM132.1 mln a year ago, mainly due to lower impairment losses and higher EBITDA. Revenue for the quarter also grew 2.6% Y.o.Y to RM5.4 bln, from RM5.26 bln in the fourth quarter last year.

• Full year net profit, however, narrowed 5.5% Y.o.Y to RM1.37 bln, from RM1.44 bln, despite slightly stronger revenue at RM20.85 bln, from RM20.03 bln earlier. The group declared a final dividend of 6.0 sen per share and a special dividend of 7.0 sen per share. (The Edge Daily)  Pos Malaysia Bhd posted its second straight quarterly loss with a 3QFY19 net loss of RM13.0 mln, from a net profit of RM9.5 mln previously, mainly due to persisting decline in mail volume and lower logistics earnings contribution. Revenue was also 6.4% Y.o.Y lower at RM581.2 mln, from RM620.7 mln in 3QFY18.

• Consequently, cumulative 9MFY19 net loss stood at RM24.6 mln, from a net profit of RM64.2 mln last year, while revenue dropped to RM1.76 bln, compared to RM1.82 bln a year ago. (The Edge Daily)

• UMW Holdings Bhd posted a net profit of RM15.1 mln in 4Q2018, from a net loss of RM422.1 mln before, despite a 9.9% Y.o.Y fall in revenue to RM2.68 bln, from RM2.97 bln earlier.

• On a full year basis, the group returned to the black with a net profit of RM341.7 mln, from a net loss of RM640.6 mln in 2017 on improvements at its core segments and the reversal of provisions. Revenue also inched 2.2% Y.o.Y higher to RM11.31 bln, from RM11.07 bln in the last corresponding year. Subsequently, the group has announced a final dividend of 2.5 sen per share. (The Edge Daily)

• Sime Darby Property Bhd posted a maiden loss of RM347.5 mln in 2QFY19, against a net profit of RM138.08 mln last year – as the previous period included gains on disposal of a subsidiary and associate, high impairment of inventories, negative contribution from its Battersea project and a higher tax provision. Revenue, however, grew 12.1% Y.o.Y to RM788.8 mln, from RM703.6 mln a year earlier.

• For 1HFY19, net loss stood at RM318.7 mln against a net profit of RM559.8 mln previously, despite a 7.9% Y.o.Y increase in cumulative revenue at RM1.27 bln, from RM1.18 bln in the same period in FY18. (The Edge Daily)

• MMC Corp Bhd’s 4Q2018 net profit surged 59.8% Y.o.Y to RM119.7 mln, from RM74.9 mln previously, following the full consolidation of Penang Port Sdn Bhd’s results, higher contribution from the Sungai Buloh-SerdangPutrajaya MRT 2 Line, no share of losses from Zelan Bhd and higher share of profit from Malakoff Corp Bhd. Quarterly revenue also gained 28.0% Y.o.Y to RM1.59 bln, from RM1.23 bln in 4Q2017. (The Edge Daily)

• Serba Dinamik Holdings Bhd posted a record high 4Q2018 net profit of RM109.3 mln (+39.0% Y.o.Y), from RM78.6 mln in 4Q2017 on increased O&M activities, while revenue rose 21.2% Y.o.Y to RM978.0 mln, from RM806.9 mln before.

• Full-year net profit was 25.9% Y.o.Y stronger to another record high of RM387.9 mln, while revenue added 20.6% Y.o.Y to RM3.28 bln. Consequently, Serba has declared a fourth interim dividend of 2.3 sen per share. (The Edge Daily)  

Source: Mplus Research - 28 Feb 2019