Increasingly Toppish, Pullback Due

• The FBM KLCI remained firm on Friday after closing higher for the fourthstraight day due to foreign buyingsupport. On a weekly basis, the local key-index also gained 2.7% W.o.W to 1,682.3 points. The majority of the lower liners advanced, with the exception of the FBM Fledgling (-0.1%). All the sectors on the broader market also closed higher – led by defensive counters from the REITs and Healthcare sub-sectors.

• Market breadth was upbeat as advancers outrun the underperformers on a ratio of 474-to-338 stocks. Traded volumes, however, eased marginally 1.9% to 2.22 bln shares amid the lack of fresh trading catalysts.

• Significant outperformers were Hong Leong Bank (+50.0 sen), Nestle (+20.0 sen), Petronas Chemicals (+19.0 sen), Sime Darby Plantations (+18.0 sen) and Genting (+10.0 sen), while broader market gainers consists of Panasonic Manufacturing (+60.0 sen), Carlsberg (+54.0 sen), Time DotCom (+54.0 sen), KLCC (+30.0 sen) and United Plantations (+28.0 sen).

• Broader market underperformers were Lysaght (-13.0 sen), New Hoong Fatt (- 13.0 sen), UEM Edgenta (-11.0 sen), Telekom Malaysia (-11.0 sen) and MB World Group (-10.0 sen). Plantation heavyweights like IOI Corporation (-8.0 sen) and Kuala Lumpur Kepong (-4.0 sen) continued to weighed down the key-index, alongside Petronas Dagangan (-4.0 sen), Genting Malaysia (-3.0 sen) and Dialog (-2.0 sen).

• Asian stockmarkets shrugged off the positive sentiment on Wall Street and closed mostly lower amid renewed geopolitical tensions and gains in safehaven assets. The Nikkei (-1.0%) retreated due to profit-taking activities and weakness in the real estate (-3.0%) and healthcare (-2.0%) sectors. The Hang Seng index also tumbled despite rebounding from intraday low. On the other hand, the Shanghai Composite (+0.5%) extended its winning streak, while ASEAN equities closed broadly lower.

• U.S. major indexes booked back-to-back weekly gains, despite closing with small losses last Friday. The Dow and the S&P 500 fell 0.1% each, while the Nasdaq (- 0.2%) ended slightly above the 8,000 psychological level.

• Earlier, European equities finished slightly lower following a choppy intraday session ahead of the much anticipated U.S.-China meeting this week. The FTSE fell 0.2%, albeit offset by gains in miners, while both the DAX and the CAC erased 0.1% each.

The Day Ahead

• The FBM KLCI is becoming increasingly overbought following the recent gains which was largely discerning and were on last minute lift on selective stocks. Hence we view the recent gains as already overdone and a pullback is already due.

• As it is, there remains little change to corporate Malaysia’s fundamentals and the recent selected gains that has allowed the key index to claw back nearly 100 points from its four-year low has left its valuations perching on the expensive territory.

• Therefore, we continue to see little room for the FBM KLCI to make further gains amid the toppish valuations, albeit there are still few noticeable signs of an impending pullback as yet. Still, we think that the key index stocks are ripe for a pullback that could see it retracing to the 1,675 and 1,670 levels. The resistances are at 1,690 and 1,700 points respectively.

• The lower liners and broader market shares, however, is still seeing scant following and with positive leads still far and in-between, we think that the lacklustre trend among FBM Small Cap, FBM Fledgling and FBM ACE market shares will remain a feature for longer. points from its low in May. Further on, the resistances are located at the 1,680 level, followed by the 1,687 level. The supports are at 1,666 and 1,660 levels respectively.

Company Update

• Mitrajaya Holdings Bhd has bagged a RM90.0 mln contract to refurbish a hotel in Putrajaya. It received a letter of award from Idaman Putrajaya Sdn Bhd to undertake the refurbishment works at the Pullman Putrajaya Lakeside Hotel over a period of 38-week. (The Edge Daily)

Comments

• The abovementioned contract marks the first major construction contract secured by Mitrajaya in 2019. This brings its orderbook replenishment to 30.0% of our construction orderbook replenishment forecast of RM300.0 mln for 2019. Moving forward, its unbilled construction orderbook of approximately RM1.00 bln will underpin its construction segment’s earnings over the next two years.

• With the orderbook replenishment falling within our estimates, we leave our earnings forecast unchanged and we maintain our SELL recommendation on Mitrajaya with an unchanged target price of RM0.30.

• Our target price is derived from a sum-of parts 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 of their respective book values.

COMPANY BRIEF

• The Federal Government is offering to pay Gamuda Bhd and Lingkaran Trans Kota Holdings Bhd (Litrak) some RM4.5 bln to take over four toll highways in the Klang Valley. The government, in its offer, has fixed the purchase consideration at RM6.2 bln enterprise value, less any outstanding indebtedness as at completion of the deal.

• The breakdown of the purchase consideration for these expressway concession companies are RM1.23 bln for Kesas, RM870 mln for Sprint, RM2.34 bln for LDP and RM60 mln for SMART. Based on the group’s effective interest in these toll highways, Gamuda expects its share to be RM2.36 bln. These offers remain valid until July 12. (The Edge Daily)

• FGV Holdings Bhd is continuing its transformation plan with the group yielding greater operational improvements. Despite posting a net loss for the first quarter ended March 31, 2019 (1QFY19), the group is said to be on track to achieve its targets for the full year.

• As of May, the group's fresh fruit bunch (FFB) production stood at 1.82 mln tonnes and is on track to reach its FFB production annual target of 4.79 mln tonnes. In terms of FFB yield, yields stood at 6.35 tonnes per ha. as of May, with FGV on track to reach its yield target of 19.43 tonnes per ha. Meanwhile, the cost of production for crude palm oil (CPO) — excluding the mill — now stands at RM1,482 per tonne, which is close to its RM1,469 per tonne target. As far as procurement savings are concerned, the group has saved RM60.7 mln, which accounts for 40.5% of the savings target of RM150 mln. (The Edge Daily)

• MyNews Holdings Bhd's net profit rose 16.4% Y.o.Y to RM7.9 mln in 2QFY19 from RM6.8 mln a year ago, which it attributed to the growth in the number of stores as well as higher sales of the existing outlets. Quarterly revenue jumped 41.2% Y.o.Y to RM13.0 mln from RM94.2 mln in 2QFY18.

• For the cumulative six months (1HFY19), MyNews achieved nearly 23.0% Y.o.Y growth in net profit to RM16.2 mln from RM13.2 mln a year ago, while revenue leapt by 39.2% Y.o.Y to RM256.5 mln from RM184.3 mln in 1HFY18. (The Edge Daily)

• HeiTech Padu Bhd has secured a RM79.6 mln contract from Bank Simpanan Nasional (BSN), which involves enterprise storage upgrade and technology refreshment works for the bank. BSN will decide on the commencement date of the three year contract later. (The Edge Daily)

• Tropicana Corp Bhd has lodged an RM2.0 bln perpetual sukuk programme with the Securities Commission Malaysia to raise proceeds to refinance its existing obligations, as well as for working capital.

• The programme allows for the issuance of unrated and senior ranking perpetual sukuk from time to time, with flexibility to issue secured or unsecured sukuk. The aggregate outstanding nominal amount of the perpetual sukuk must, however, not exceed RM2.0 bln at any point in time. (The Edge Daily)  

Source: Mplus Research - 24 Jun 2019