Consolidation Spell Remains

• The FBM KLCI (-0.3%) retreated as profit taking activities in selected index heavyweights emerged on Tuesday. The lower liners – the FBM Small Cap (+0.8%), FBM Fledgling (+0.4%) and FBM Ace (+0.5%), however, outperformed the local bourse to extend their gains, while the broader market closed mostly higher.

• Market breadth stayed positive as advancers outstripped decliners on a ratio of 455-to-348 stocks. Traded volumes fell 1.7% to 2.24 bln shares as profit taking activities emerged.

• Half of the key index constituents were in the red, led by Tenaga (-8.0 sen), followed by Hong Leong Bank (-24.0 sen), PPB Group (-16.0 sen), Hartalega (- 6.0 sen) and RHB Bank (-6.0 sen). Among the biggest decliners on the broader market were Genting Plantations (-24.0 sen), Heineken (-16.0 sen), UMW Holdings (-14.0 sen), QL Resources (-12.0 sen) and YNH Property (-11.0 sen).

• On the contrary, significant gainers on the broader market include United Plantations (+56.0 sen), Hong Leong Industries (+20.0 sen), Magni-Tech Industries (+18.0 sen) and Dufu Technology (+17.0 sen). Ikhmas Jaya added 2.0 sen after bagging a package for the LRT3 project worth RM405.0 mln. Meanwhile, MISC (+16.0 sen), Nestle (+10.0 sen), Petronas Dagangan (+8.0 sen), Malaysia Airport Holdings (+5.0 sen) and Axiata (+4.0 sen) rose on the FBM KLCI.

• Asia benchmark indices extended their gains as the Nikkei rose 0.3%, mirroring the positive sentiment on Wall Street overnight. The Hang Seng Index climbed 0.8%, while the Shanghai Composite jumped 2.6% after authorities allowed the usage of special bonds to finance certain investment projects, boosting infrastructure spending. ASEAN stockmarkets, meanwhile, closed mostly higher yesterday.

• U.S. stockmarkets endured a volatile trading session before staging a pullback as the Dow (-0.1%) snapped a six-day winning streak as investors digested a new round of U.S.-China trade standoff after the U.S. look to impose additional tariffs on Chinese goods should an agreement not reach in the upcoming G20 meeting. On the broader market, the S&P 500 fell 0.03%, while the Nasdaq closed 0.01% lower.

• Earlier, European benchmark indices – the FTSE (+0.3%), CAC (+0.5%) and DAX (+0.9%) all advanced, taking cue from the positive sentiment across Asian stockmarkets. In the meantime, the U.S.’ unemployment rate in May 2019 stood at 45 year low of 3.8%.

The Day Ahead

• Yesterday’s FBM KLCI retreat was already in the offing amid the toppish technical indicators after the gains over the past few weeks. Judging by the new trend, it appears that there could be further near term weakness that could prompt more profit taking activities over the near term.

• As it is, there remains little room for further upsides, not only due to the toppish conditions, but also the already fair valuations following the recent upsides of more than 4.0%. While some of the recent gains were due to betterthan-expected quarterly earnings, the improved earnings outlook is still largely meek due to the insipid global and domestic economic environment. Therefore, the toppish conditions could still see further near term consolidation with the 1,650 level serving as the immediate support, followed by the 1,644 level. The resistances are at 1,660 and 1,673 respectively.

• The lower liners and broader market shares may still continue their upside as more retail players return to the market that could provide the near term buying impetus.

COMPANY BRIEF

• Malaysia Building Society Bhd (MBSB) is planning to restructure to allow its unit, MBSB Bank Bhd to be the group’s holding company in the next two years. Subsequently the group will have to convert RM1.0 bln worth of conventional assets into Islamic assets, which currently constitute 10.0% to 12.0% of its asset portfolio within three years.

• Separately for FY19, the group is targeting more than 5.0% loan growth, with non-performing loan (NPL) ratio to be 1.2% to 1.3%. The group also targets a net return on equity (RoE) of 10.0%.

• The higher loan growth will be driven by new revenue streams such as trade finance, wealth management, internet and mobile banking, alternative financial services or peer-to-peer financing. (The Star Online)

• Ikhmas Jaya Group Bhd has secured a RM405.0 mln subcontract for the construction and completion of LRT 3 from Bandar Utama to Johan Setia, Package GS09 — Guideway, Stations, Park and Ride, Ancillary Buildings and other associated works. The 26-month sub-contract brings the total contracts secured in 2019 to RM875.0 mln. (The Edge Daily)

• Xin Hwa Holdings Bhd‘s external auditors, KPMG has revealed that the group’s funds were used to settle its Executive Directors’ personal expenses over the past two years. Thus, about three of eight allegations had some basis or were substantiated. The auditor found dividend payments from the group’s subsidiary was paid to a third party, instead of a registered shareholder, in order to settle personal debts on instruction from the registered shareholder.

• In addition, the funds were also used to pay the Executive Director’s personal expenses with payments partially made out of directors fees and the balance recognised as debts owed by the directors to the company, that have been repaid. (The Edge Daily)

• E.A Technique (M) Bhd has received a US$6.1 mln (RM25.4 mln) payment claim from Malaysia Marine Heavy Engineering Sdn Bhd (MMHE) over disputes regarding the non-payment of additional works performed by the latter, under the conversion contract signed in June 2015. (The Edge Daily)  

Source: Mplus Research - 12 Jun 2019