Possible Pullback

• The FBM KLCI advanced for the fourthstraight session amid portfolio rebalancing activities. The lower liners, meanwhile, rebounded as the FBM Small Cap (+0.7%) and the FBM Ace (+0.2%), closed positively, although the FBM Fledgling remained downward pressured. Similarly, the broader market also rallied, with the exception of the Industrial Products and Services and the Plantation sector.

• Market breadth turned positive as gainers overturned the losers on a ratio of 427-to-395 stocks. Traded volumes surged 51.4% to 2.40 bln shares amid fund portfolio re-balancing and bargainhunting activities.

• On the winners’ list, companies like Nestle (+70.0 sen), Public Bank (+34.0 sen), Tenaga Nasional (+30.0 sen), Maxis (+19.0 sen) and Sime Darby (+16.0 sen) rallied. Other advancers on the broader market, meanwhile, include Malaysian Pacific Industries (+64.0 sen), QL Resources (+46.0 sen), BAT (+40.0 sen), Petron Malaysia (+39.0 sen) and Yinson (+34.0 sen).

• On the opposite side, Aeon Credit (-28.0 sen), Tong Herr Resources (-26.0 sen), Time Dotcom (-25.0 sen), Bursa Malaysia (-18.0 sen) and Focus Lumber (-17.0 sen) retreated. Key heavyweights’ decliners include Hong Leong Bank (- 32.0 sen) and Hong Leong Financial Group (-2.0 sen) as investors digested the banks’ latest 3QFY19 earnings results, followed by Petronas Chemicals (-8.0 sen), Genting Malaysia (-3.0 sen) and IOI Corporation (-1.0 sen).

• Major Asian bourses finished higher amid a holiday-thinned session. The Shanghai Composite (+0.6%) outperformed its regional peers on the back of buying-support in the eleventh hour, while the Nikkei extended its winning streak for the third consecutive session. The Hang Seng Index (+0.4%) also rallied, boosted by gains in healthcare and information technologyrelated stocks. Similarly, ASEAN equities ended mostly higher despite lingering concerns over slowing global growth.

• Major U.S. indices – the Dow (-0.9%), the S&P 500 (-0.8%) and the Nasdaq (-0.4%) made a short-lived rally only to sink back into the red by the end of session amid renewed concerns over the ongoing SinoU.S. trade battle and falling Treasury yields.

• Earlier, European equities closed mostly in the negative territory after a volatile session, weighed down by worries of rising Italian debt and high structural deficits. The CAC (-0.4%) ended in the red at 5,312.7 points, together with the DAX (-0.4%), hit by losses in major banks. The FTSE also closed slightly lower as losses in tobacco and pharma giants offset the gains in mining stocks.

The Day Ahead

• Yesterday’s gains on the FBM KLCI were stronger than anticipated amid bargain hunting activities on some of the indexlinked stocks. It remains to be seen if there will be follow-through buying interest as the market’s undertone is still one of cautiousness which could still prompt quick profit taking actions.

• The weakness in global indices overnight, arising from the lingering trade war issues, could make it more difficult for the FBM KLCI to sustain its uptrend and we think that the weakness is set to return. This could see index linked stocks retreating again, albeit we think that any pullback is likely to be mild for now as the selling pressure has abated. Therefore, we think that the key index could comfortably stay above the 1,600 points support level as there should be bouts of supports. There is intermediate support at the 1,604 level. The resistances, meanwhile, are at 1,620 and 1,624 respectively.

• The lower liners and broader market shares are finding some support after their recent slide and is likely to hold on to their gains over the near term. There could be some profit taking activities, but we think that the pullback will be mild for now.

Company Update

• Chin Well Holdings Bhd posted a 44.0% Y.o.Y jump in 3QFY19 net profit to RM12.3 mln, from RM8.6 mln previously, backed by improved performances across the fasteners and wire rod segment, albeit slightly offset by higher raw material prices. Revenue for the quarter also grew by 21.2% Y.o.Y to RM173.0 mln, from RM142.8 mln in 9MFY18.

• Cumulative 9MFY19 net profit, meanwhile added 21.2%% Y.o.Y to RM45.9 mln, from RM37.9 mln a year ago, owing to stronger revenue contribution at RM514.5 mln (+16.6% Y.o.Y), coupled with lower selling & distribution and administrative expenses.

Comments

• The reported net profit and revenue were within our forecast, accounting to 72.2% and 78.0% of our previous full year forecast of RM63.6 mln and RM659.9 mln respectively. As such, we only made minimal adjustments to our FY19-FY20 estimates after taking into account lower margins amid inflated wire rod prices and higher interest expenses due to increased debt.

• We reiterate our BUY call on Chin Well with an unchanged target price of RM2.05 on expectations of a sustained growth momentum, which is backed by its ongoing capacity expansion and upgrades, healthy demand for downstream wire products and improved efficiency. In addition, the stock also offers a reasonable dividend yield of 4.7%-5.1%.

• Our target price is arrived by ascribing an unchanged target PER of 9.0x to Chin Well’s revised FY19 EPS of 22.9 sen. The group is currently trading at a forward PER of 7.8x, which is below its three-year average PER of 9.0x – indicating room for more upside, in our opinion.

• 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.

• Mitrajaya Holdings Bhd’s 1Q2019 net loss stood at RM4.3 mln vs. a net profit of RM19.2 mln recorded in the previous corresponding quarter, dragged down by lower contribution in the construction and property development segment. Revenue for the quarter decreased 30.0% Y.o.Y to RM185.6 mln.

• The reported earnings came below our expectations as we expect Mitrajaya to chalk in net profit of RM34.9 mln in 2019, while revenue came slightly below our expectations, accounting to 23.7% of our RM783.1 mln forecast. The difference in the bottomline is mainly due to lowerthan-expected contribution from the construction segment amid its depleting unbilled orderbook.

Comments

• With the reported earnings coming below our estimates, we slashed our earnings forecast for 2019 and 2020 by 66.2% and 50.7% to RM15.9 mln and RM16.2 mln respectively to account for the lower execution of construction works, margins compression in the construction segment and the sluggish property sales. Consequently, we downgrade our recommendation on Mitrajaya to SELL (from Hold), with a lower target price of RM0.30 (from RM0.34).

• 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 0.4x (down from 0.5x) 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 returned to the black in 1Q2019 with net profit amounted to RM1.2 mln vs. a net loss of RM2.1 mln recorded in the previous corresponding quarter, underpinned by improved contribution from the construction sector, coupled with the completion of its right sizing exercised at end 2018. Revenue for the quarter gained 5.6% Y.o.Y to RM166.3 mln.

• The reported earnings make up to 6.0% of our full year net profit of RM20.4 mln for 2019. The reported revenue amounted to 17.3% of our full year estimate of RM961.7 mln.

Comments

• Although both the reported revenue and earnings makes up less than a quarter of our estimates, we deem the figures to be in-line as the 1H results were traditionally weaker. Hence, we made no changes to our earnings forecast and we maintain our HOLD recommendation on Protasco with an unchanged target price of RM0.25.

• 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 its smaller scale businesses, while its property development division’s valuation is derived from ascribing an unchanged 0.6x to its BV.

COMPANY BRIEF

• Tenaga Nasional Bhd’s 1Q2018 net profit in the first quarter fell 26.5% Y.o.Y to RM1.55 bln on higher forex translation losses and higher finance costs. Revenue for the quarter, however, rose 7.9% Y.o.Y to RM13.24 bln. (The Star Online)

• AMMB Holding Bhd’s 4QFY19 net profit rose 81.4% Y.o.Y to RM459.7 mln. Revenue for the quarter gained 10.6% Y.o.Y to RM2.33 bln, driven by its strong transformation strategy, net recovery and lower expenses.

• For FY19, cumulative net profit rose 32.9% Y.o.Y to RM1.51 bln. Revenue for the year increased 6.3% Y.o.Y to RM9.12 bln. A dividend of 15.0 sen a share for the quarter was declared. (The Star Online)

• Petronas Gas Bhd’s (PetGas) 1Q2019 net profit grew 6.7% Y.o.Y to RM515.5 mln on unrealised foreign exchange gain on translation of US dollar denominated lease liabilities and higher share of profit from a joint venture company, following the completion of the group’s air separation unit project in Pengerang, Johor. Revenue for the quarter rose 1.2% Y.o.Y to RM1.37 bln. (The Star Online)

• Petronas Dagangan Bhd’s 1Q2019 net profit increased 33.3% Y.o.Y to RM291.2 mln, following better performance from its commercial and retail segments. Revenue for the quarter inched 0.3% Y.o.Y higher to RM7.09 bln. A 15.0 sen dividend, payable on 27th June 2019 was declared. (The Edge Daily)

• IHH Healthcare Bhd will reduce its nonTurkish lira-debts by up to US$250.0 mln, starting this year. The group will be refinancing the debt and that this will be done in stages, with the aim of reducing its foreign currency denominated debt to US$420.0 mln. In 2018 the group’s foreign currencydenominated debt was US$670.0 mln. (The Edge Daily)

• Scomi Group Bhd plans to issue new shares in Scomi Energy Services Bhd as part of its efforts to settle its RM114.0 mln debt with Malayan Banking Bhd (Maybank).The group has pledged 206.0 mln shares in its 65.7%-owned subsidiary for the settlement, which Maybank has agreed to. (The Edge Daily)

• After four consecutive quarterly losses, Axiata Group Bhd swung back to the black with a 1Q2019 net profit of RM709.1 mln, compared with a net loss of RM147.4 recorded in the previous corresponding quarter, due to better topline and RM113.0 mln gain from the divestment of its stake in Singapore telco M1. Revenue for the quarter grew 3.5% Y.o.Y to RM5.95 bln. (The Edge Daily)

• Padini Holdings Bhd's 3QFY19 net profit declined 12.9% Y.o.Y to RM34.7 mln, due to narrower gross profit margin. Revenue for the quarter, however, grew 11.5% Y.o.Y to RM474.2 mln.

• For 9MFY19, cumulative net profit declined 12.5% Y.o.Y to RM105.8 mln. Revenue for the period, however, rose 5.5% Y.o.Y to RM1.27 bln. An interim dividend of 2.5 sen, and a special dividend of 1.5 sen payable in June 2019, was announced. (The Edge Daily)

• British American Tobacco (Malaysia) Bhd's 1Q2019 net profit fell 7.9% Y.o.Y to RM88.6 mln, due to consumer downtrading and the legal market contracting. Revenue for the quarter slipped 2.6% Y.o.Y to RM621.0 mln. A first interim dividend of 30.0 sen, payable on 25th June 2019 was declared. (The Edge Daily)

• MMC Corp Bhd’s 1Q2019 net profit gained 29.4% Y.o.Y to RM53.5 mln due to higher contributions from its port entities. Revenue for the quarter, however, declined 10.7% Y.o.Y to RM1.14 bln, from RM1.28 bln, due to lower contribution from the Klang Valley Mass Rapid Transit (KVMRT) Sungai Buloh-Serdang-Putrajaya (SSP) Line underground works. (The Edge Daily)  

Source: Mplus Research - 29 May 2019