Few Leads, Consolidation To Continue

• The FBM KLCI (-0.3%) recorded its third straight session of decline after lingering mostly in the negative territory, dragged down by Tenaga Nasional (- 3.8%) last Friday. Despite that, the key index rose 0.6% W.o.W. The lower liners, however, closed mostly higher as the FBM Small Cap and FBM ACE rose 0.2% and 0.8% respectively, while the broader market closed mostly lower.

• Market breadth turned negative as decliners outnumbered advancers on a ratio of 480-to-350 stocks. Traded volumes declined 9.2% to 2.58 bln shares amid the more negative market environment.

• Tenaga sank 45.0 sen on the possibility of electricity liberising in the retail sector, coupled with the delay on the commencement of ultra-supercritical coal-fired power plant in Jimah, while other key losers on the local bourse were Petronas Dagangan (-10.0 sen), Axiata (-6.0 sen), AmBank (-6.0 sen) and Press Metal (-3.0 sen). Notable decliners on the broader market were Dutch Lady (-40.0 sen), Carlsberg (-20.0 sen), Keck Seng (-11.0 sen), Allianz (- 10.0 sen) and BAT (-10.0 sen).

• In contrast, among the biggest gainers on the broader market include Fraser & Neave (+26.0 sen), KESM Industries (+22.0 sen), Power Root (+14.0 sen) and Heineken (+12.0 sen). UEM Edgenta rose 10.0 sen after securing a RM540.1 mln contract from the Ministry of Health, Singapore. Meanwhile, Petronas Gas (+18.0 sen), CIMB (+7.0 sen), KLK (+6.0 sen), Hong Leong Financial Group (+4.0 sen) and IOI Corporation (+4.0 sen) advanced on the key index.

• Asia benchmark indices closed mostly higher as the Nikkei and Shanghai Composite rose 0.2% each after recovering all their intraday losses on expectations on more stimulus measures from central banks. The Hang Seng Index (-0.1%), however, extended its losses. ASEAN stockmarkets, meanwhile, closed mixed on last Friday.

• U.S stockmarkets retreated from their record high levels as the Dow (-0.2%) snapped a four-day winning streak after the stronger-than-expected jobs data simmers expectation on easing monetary policy. Likewise, the S&P 500 fell 0.2%, while the Nasdaq (-0.1%) fell for the first time in seven days.

• Earlier, European benchmark indices - the FTSE (-0.7%), CAC (-0.5%) and DAX (- 0.5%), all slipped, pressured by the sluggish German economic data that saw industrial orders falling 8.6% Y.o.Y in May 2019 - the steepest decline since 2009. Meanwhile, mining stocks sank after China’s major steel companies formed a group to investigate the recent surge in iron ore prices.

THE DAY AHEAD

• Even after last Friday’s pullback, the key index still remains overbought, albeit slightly, and we think that the consolidation spell could continue with few fresh leads to provide a revival as yet, both from local and foreign sources.

• With the key index making significant headway over the past six weeks, the gains have already tipped valuations into the expensive zone and have largely reflected the earnings recovery from 2018’s malaise.

• With few immediate impetuses, it is becoming more difficult for the key index to make further headway over the near term, in our view, and we continue to think that a meaningful consolidation beckons for the gains to be digested, although we continue to think that institutional support will delay the process. In the interim, the supports are at the 1,680 and 1,677 levels. The resistances are at 1,685 and 1,690 levels respectively.

• The FBM Small Cap index is also becoming increasingly toppish after its recent gains and we also think that a pullback is due. The other lower liners and broader market shares are also looking toppish which are all due for a retreat as well.

COMPANY BRIEF

• Seacera Group Bhd has defaulted on another loan of RM31.8 mln owed to Small Medium Enterprise Development Bank Malaysia Bhd (SME Bank). SME Bank had previously stated it will commence legal action against Seacera, including winding up proceedings if it fails to settle the debt.

• The money owed represents the total amount outstanding due under the Bank Guarantee (Kafalah) and Commodity Murabahah Revolving Financing-i (CMRFi), which was owed by Seacera’s 20.0% associate firm, SPAZ Sdn Bhd. (The Edge Daily)

• MMC Corp Bhd has accepted the offer by the Ministry of Finance Inc (MoF Inc) to acquire the group’s 50.0% equity interest in Syarikat Mengurus Air Banjir & Terowong Sdn Bhd for RM184.5 mln cash.

• The takeover is part of the Federal Government’s offer to take over four tolled highway concessionaires under Gamuda Bhd and Lingkaran Trans Kota Holdings Bhd for RM6.2 bln.

• Syarikat Mengurus Air Banjir & Terowong, the concession of the Stormwater Management and Road Tunnel (SMART), is a unit of Projek SMART Holdings Sdn Bhd. (The Star Online)

• Milux Corp Bhd announced new appointments on 5th July 2019 following the conclusion of the mandatory takeover offer launched by Topspike Holdings Sdn Bhd and Asia New Venture Capital Holdings Sdn Bhd.

• Mohd Anuar Mohd Hanadzlah has resigned as Independent and NonExecutive Chairman of the group with Datuk Dr Wong Lai Sum replacing him as the group’s Chairman.

• Separately, Datuk Wira Ling Kah Chok has also been appointed as the group’s Executive Vice-Chairman. Meanwhile group Managing Director, Koh Pee Seng has resigned from his position and is replaced by Datuk Khoo Teck Kee. (The Edge Daily)

• Daya Materials Bhd has defaulted on additional payments to AmBank (M) Bhd totalling RM0.8 mln, bringing its total debt to the bank to RM1.1 mln. The default was on a payment was due on 5th July 2019 in-relation to banking facilities granted by AmBank. The default was mainly due to Daya's cash flow constraints. (The Edge Daily)

• Hengyuan Refining Co Bhd's Board has approved the full fund release amounting to US$26.6 mln (about RM110.0 mln) for the Euro 5 gasoil project. The project is undertaken to revamp its second hydro desulfurization unit to meet the 10 parts per mln by weight (ppmw) sulphur specification by September 2020, as well as to re-instate the unit capacity to 6,300 tonnes per day.

• The project, which is to be executed within its refining complex in Port Dickson, is one of the three regulatory driven investments outlined in the company’s strategy to continue to operate as a refinery and to remain competitive in the industry, it said. (The Edge Daily)

• AT Systematization Bhd has inked an agreement to manufacture and supply high quality machined components to subsidiaries of Swiss company Rieter Machine Works Ltd. The group said that the agreement, which is for a three-year period with an automatic extension for a further year, includes aluminium profiles to be used in Rieter’s textile machines. (The Edge Daily)

Source: Mplus Research - 8 Jul 2019