Milder Gains As Conditions Reman Toppish

• The FBM KLCI (+0.4%) started off the week on a firm footing as the key index extended its gains after hovering in the positive territory for the entire trading session. The lower liners – the FBM Small Cap (+1.3%), FBM Fledgling (+1.1%) and FBM Ace (+2.7%) all trended sharply higher, while the broader market finished on a positive note, led by the technology sector (+2.4%).

• Market breadth stayed positive as advanced overpowered decliners on a ratio of 613-to-276 stocks. Traded volumes gained 47.2% to 2.28 bln shares amid the more positive market undertone.

• Malaysia Airport Holdings (+24.0 sen) led the local bourse winners list, followed by Hong Leong Bank (+22.0 sen), Genting (+11.0 sen), RHB Bank (+10.0 sen) and DIGI (+9.0 sen). Among the biggest gainers on the broader market were Fraser & Neave (+54.0 sen), Apex Healthcare (+26.0 sen), Aeon Credit (+22.0 sen), UMW Holdings (+21.0 sen) and Magni-Tech Industries (+13.0 sen).

• Meanwhile, BAT (-52.0 sen), Atlan Holdings (-30.0 sen), Carlsberg (-30.0 sen) and Ajinomoto (-12.0 sen) slipped on the broader market. Kumpulan Powernet fell 0.5 sen after Bursa Malaysia issued an unusual market activity query on the recent sharp rise in its share price. Key losers on the FBM KLCI were Nestle (-50.0 sen), Petronas Gas (-36.0 sen), Hong Leong Financial Group (-10.0 sen), Petronas Dagangan (- 10.0 sen) and PPB Group (-8.0 sen).

• Asia benchmark indices advanced, taking cue from the positive sentiment on Wall Street last Friday. The Nikkei added 1.2% after the revised 1Q219 GDP rose 2.2% Y.o.Y, higher than the previous estimate of a 2.1% Y.o.Y rise. Likewise, both the Hang Seng Index (+2.3%) and Shanghai Composite (+0.9%) trended higher as the latter was boosted by the stronger-than-expected trade data in May 2019. ASEAN equities, meanwhile, closed on a positive note on Monday.

• U.S. stockmarkets were powered higher overnight as the Dow (+0.3%) recorded its sixth straight winning session after U.S. President Donald Trump dropped his plan to impose tariffs on Mexico goods after both parties came into an agreement on illegal immigrants’ flow. On the broader market, the S&P 500 added 0.5%, while the Nasdaq closed 1.1% higher.

• Earlier, European benchmark indices also extended their gains as the FTSE and CAC climbed 0.6% and 0.3% respectively, taking cue from the positive sentiment across global equities. German stockmarkets were closed for the Whit Monday public holiday.

The Day Ahead

• Although there appears to be some measure of stability in the market’s condition – helped by the easing of trade disputes and potential government monetary policy supports, the overall outlook is still murky as the biggest market impediment – the U.S-China tariff war remains unresolved that will continue to leave sentiments on the wary side.

• While the latest development is also helping stocks on Bursa Malaysia to make headway, conditions remain overbought and this is likely to temper the upside potential over the near term. Therefore, we think that the upsides will remain mild as the buying will become more selective after the recent strong gains that have seen the key index gaining nearly 5.0% from its low of 1,580 points a month ago.

• The FBM KLCI could now test the 1,657- 1,660 levels, before making a pass at the 1,673 level. The supports, on the other hand, are at 1,650 and 1,644 points respectively.

• Meanwhile, the lower liners and broader market shares could continue to make headway as market participation returns that are also seeing renewed buying on selected stocks. With the near term market sentiment on a calmer note, we see further near term upsides on the lower liners and broader market shares on rotational and trading activities.

Company Update

• Kim Loong Resources Bhd has reported that a fire broke out at its palm oil mill in Kota Tinggi, Johor, at about midnight on 9th June 2019. The fire was put out and an investigation into the cause of the fire and damage to the processing equipment is underway.

Comments

• We expect minimal impact on the abovementioned event as the disruption on the Kota Tinggi mill will only last for two weeks. In the meantime, any losses arising from the disruption of operations will be recovered through insurance claims.

• Therefore, we made no changes to our earnings forecast and we maintain our HOLD recommendation KLR with an unchanged target price of RM1.20 by ascribing an unchanged target PER of 14.5x to its FY19 EPS of 8.3 sen.

• The ascribed target PER is in line with the industry average of around 13.5x-15.5x. At the target price of RM1.20, KLR will trade an implied PERs of 14.5x and 13.5x for FY18 and FY19 respectively, which is fair, in our view, given the cyclical nature of the CPO industry.

COMPANY BRIEF

• Kumpulan Powernet Bhd said that the recent unusual shares trading activity could be attributed to certain substantial shareholders and directors that are negotiating and finalising the terms of a share sale agreement to dispose of their shares. This comes after the group was slapped with an unusual market activity (UMA) query by Bursa Malaysia. (The Star Online)

• Ikhmas Jaya Group Bhd has clinched two subcontract jobs for the SetiawangsaPantai Expressway (SPE or DUKE Phase 3) from Knusford Construction Bhd for the construction of bridge structures for different parts of the SPE. The first contract is worth RM23.5 mln and will take 37 weeks to complete, while the second project is valued at RM51.8 mln and will run for 15 months. YTD contract wins now stand at RM470.0 mln. (The Edge Daily)

• Malaysia Smelting Corp Bhd has denied a newsfeed report which alleged the group is delaying tin shipments to customers worldwide due to a shortage of concentrate. The group’s operations are running as usual and deliveries of shipments to its customers are on schedule.

• The article reported that the company informed its customers of delayed deliveries, which could take two to three weeks, instead of the usual three to four day and that shipments have seen delays since February. (The Star Online)

• Icon Offshore Bhd has secured a contract worth RM39.0 mln to provide anchor handling tugs supply (AHTS) to Sarawak Shell Bhd/ Sabah Shell Petroleum Co Ltd (Shell). The contract is to last more than two years or 825 days — with two oneyear extensions. The commencement date for the contract and vessel hire date was 6th April 2019. (The Star Online)

• Malaysia Airports Holdings Bhd’s (MAHB) airport network saw a 1.3% Y.o.Y growth with 10.6 mln passengers in May, despite the Ramadhan fasting period. International passengers grew 3.2% to 5.0 mln passengers, albeit domestic passengers slipped 0.3% to 5.6 mln passengers. For the first five months of 2019, passenger movements grew 4.1% Y.o.Y to 42.0 mln, from 40.4 mln passengers last year. (The Edge Daily)

• DRB-Hicom Bhd’s 50.1%-owned unit, Proton Holdings Bhd has reported an increase of 51.3% M.o.M in sales volume to 10,611 units in May, boosting sales in the first five months of 2019 to over 70.0% compared to last year. The car maker’s market share stood at 17.2% in May. The improved turnover volumes were mainly due to the strong demand for the X70, alongside its updated Iriz and Persona models. (The Edge Daily)  

Source: Mplus Research - 11 Jun 2019