Improved Sentiments To Stir Rebound

• The FBM KLCI closed lower after lingering mostly in the negative territory, with all of its constituents splashed in red; the worst being Public Bank (-78.0 sen). Similarly, the lower liners traced the Main Board to close broadly lower, while the broader markets also took a hit, with the exception of REITs.

• Market breadth was negative as decliners overwhelmed the advancers by more than four-fold. Traded volumes, meanwhile, gained slightly by 11.6% to 2.19 bln shares, boosted by the broad selldown across the markets.

• Among the worst performing heavyweights were Public Bank (-78.0 sen), Nestle (-30.0 sen), Tenaga Nasional (-22.0 sen), Malaysia Airports (-19.0 sen) and Petronas Chemicals (- 15.0 sen), followed by BAT (-20.0 sen), Batu Kawan (-18.0 sen), Sam Engineering and Equipment (-18.0 sen), Rapid Synergy (-17.0 sen) and Malaysian Pacific Industries (-15.0 sen).

• On the other side of the trade, broader market stocks that bucked the general downtrend were United Plantations (+20.0 sen) - on the back of stronger crude palm oil prices, alongside Hong Leong Industries (+8.0 sen), Magnum (+8.0 sen), Westports (+8.0 sen) and Bintulu Port Holdings (+7.0 sen).

• Key regional indices experienced yet another session of pullbacks as investors grapple with weaker energy prices and the escalating antigovernment protests in Hong Kong. The Nikkei fell 1.1%, with all of its sectors in the red, alongside the Shanghai Composite (-0.6%) and the Hang Seng Index (-2.1%). Most ASEAN stockmarkets also tumbled at Tuesday’s close.

• U.S. equities also made a turnaround as investors cheered a temporary reprieve from the ongoing trade tensions following the potential delay and removal of additional tariffs on Chinese imports ahead of the Christmas holidays. Techindices like the Nasdaq (+2.0%) and the S&P 500 (+1.5%) jumped strongly, while the Dow rose 1.4% to 26,279.9 points.  
• European bourses made a strong comeback in the eleventh hour, despite lingering largely in the red as investors fled to safe-haven assets amid prospects of slowing global growth. The FTSE (+0.3%) pared earlier losses after U.K’s wage growth reportedly hit its highest in 11 years. The DAX also added 0.6%, although German economic sentiment remained dampened, while the CAC gained 1.0%.

THE DAY AHEAD

• After a wretched session that saw the key index dipping below the 1,600 points level, we think that there could some reprieve over the near term after the U.S. President’s move to delay the implementation of further tariffs on China-made goods until December this year. This is bringing some cheer to key global indices overnight that is also set to extend to Malaysian equities.
• The rebound will allow the key index to re-capture the 1,600 points level and could even move towards the 1,610 resistance, albeit we think that the 1,620 target is still stretched for now. While we think that there will be a decent recovery over the near term, the market’s undertone is still one of cautiousness due to the unresolved trade dispute and the slowing global economic growth prospects. Therefore, we still see substantive volatility among equities over the foreseeable future. On the downside, there is support at the 1,590 and 1,590 respectively.

• Similarly, we also see the lower liners and broader market shares posting recoveries over the near term as bargain hunting activities could return amid the more positive market undertone over the near term. However, we still see the buying actions punctuated by quick profit taking activities as most retail players will still be on a cautious mode for now.

COMPANY UPDATE

• Serba Dinamik Holdings Bhd has secured an EPCC contract valued at US$250.3 mln in Uzbekistan. Separately, Serba Dinamik Sdn Bhd has secured two operations & maintenance (O&M) contracts from Petronas Carigali Sdn Bhd for the provision of maintenance services for Weir Gas Compressor and provision of maintenance of Capstone Microturbine Generator valued at approximately RM70.0 mln.

Comments

• Together with the aforementioned projects, Serba Dinamik’s orderbook replenishment stood at RM1.30 bln (excluding O&M contracts that are on “call-out” basis), representing 43.3% of our orderbook replenishment of RM3.00 bln for 2019.

• The aforementioned contracts bumps Seba Dinamik’s unbilled orderbook to record high at approximately RM9.00 bln that will generate long-term earnings visibility until 2033.

• With the orderbook replenishment remaining within our assumptions, we made no changes to our earnings forecast and we maintained our BUY recommendation on Serba Dinamik with an unchanged target price of RM4.65. Our target price is derived by ascribing an unchanged target PER of 15.0x to its forecast 2020 EPS of 31.0 sen. The ascribed PER is in line with the mid-large cap oil & gas peers average of 16.5x.

COMPANY BRIEF

• George Kent (M) Bhd has commenced an arbitration proceeding against its joint venture partner, Malaysian Resources Corporation Bhd (MRCB) over a dispute relating to securing of funds for the Light Rail Transit Line 3 (LRT 3) project. The notice of arbitration was served on 13th August 2018 after George Kent and MRCB have a difference of opinion in the interpretation of certain provisions of the shareholders' agreement with regards to the options for securing of the financing requirements for the JV company. (The Star Online)

• Axis REIT will acquire two industrial properties for RM55.8 mln in Taman Teknologi Nusajaya. The acquisitions will be funded using existing bank financing. The first property is worth RM42.0 mln with a land area of 1.5 ha. and a lettable area of 104,694 sq.ft. It is currently leased to GKN Aerospace, with the lease expiring on 15th July 2024.

• The second property is worth RM13.8 mln with a land area of 0.7 ha. and lettable area of 42,067 sq.ft. It is currently leased to Sternmaid Asia Pacific Sdn Bhd, with the lease expiring on 14th August 2022. (The Edge Daily)

• Complete Logistics Services Bhd is to sell 80.0% of its shareholdings in Dolphin Shipping Agency Sdn Bhd (DSA), Guper Integrated Logistics Sdn Bhd (GIL) and Gems Logistics Sdn Bhd (GEMS) to SH Cogent Logistics Pte Ltd for RM85.6 mln. This will result in a gain of RM57.3 mln.

• The disposal is also inclusive of two pieces of leasehold land in Johor and Selangor, measuring 14,961 sq.m. and 10,667 sq.m. respectively, with a warehouse attached on both pieces of land. Of the proceeds, RM20.3 mln be used for a dividend for shareholders, with the rest used for future investment and working capital. (The Edge Daily)

• Dagang NeXchange Bhd (DNeX) has inked a Memorandum of Understanding (MoU) with Johor government-owned Perbadanan Islam Johor Sdn Bhd (PIJ) to work on the Johor halal certification blockchain system (JHCBS) for the application and verification of halal and marriage certificates, as well as the development and implementation of a digital halal hub and an e-commerce halal platform. (The Edge Daily)

• GHL Systems Bhd has obtained an operating license to lend money in Malaysia and Thailand. The license permits money lending services to both individuals and businesses. (The Edge Daily)

• Malaysia Airports Holdings Bhd (MAHB) registered a 5.3% Y.o.Y increase in passenger traffic in July 2019 to 12.5 mln passengers. Both its international and domestic sectors grew 5.3% Y.o.Y to 6.0 mln passengers and 6.5 mln passengers respectively. The group attributed the higher passenger numbers to domestic passenger growth in Malaysia and high international passenger growth for its Istanbul Sabiha Gokcen International Airport (SGIA). (The Edge Daily)

• Sime Darby Bhd is acquiring New Zealand’s Gough Group Ltd for NZ$211.0 mln (RM572.0 mln). The Gough Group has the Caterpillar dealership with service territory in New Zealand and interests in transport and materials handling business in Australia and New Zealand. The acquisition will enhance its relationship with Caterpillar and gain exposure to the construction and forestry sectors in New Zealand. (The Edge Daily)

• Vertice Bhd has bagged two contracts worth RM22.0 mln for works on the Mass Rapid Transport Sungai BulohSerdang- Putrajaya (SSP) Line (MRT 2). The two contracts were awarded by TriArch Sdn Bhd and TA Decke Sdn Bhd. The contract from Tri-Arch is worth RM12.0 mln and is for the supply and installation of a roofing system. The contract from TA Decke is worth RM10.0 mln and is for the supply and installation of aluminium box fin and cladding works. The contracts commence on 16th August 2019 and are to be completed within 12 months. (The Edge Daily)

• Uni Wall APS Holdings Bhd has bagged a contract from Global Façade Sdn Bhd for sub-contract works worth RM83.5 mln. The contract involves the design, supply, fabrication and installation of aluminium and glazing works for office towers in Damansara Heights, Kuala Lumpur. The contract last from 16th May 2019 to 24th November 2020. (The Edge Daily)

Source: Mplus Research - 14 Aug 2019