Recovery Prospects Improve

• The FBM KLCI ended in the red for the third-straight session despite clawing back earlier losses following strongerthan-expected GDP growth and the recovery in the regional markets. On a W.o.W basis, the key-index (-1.0%) fell for the sixth consecutive week amid rising trade tensions and concerns of slowing growth. The majority of the lower liners – the FBM Small Cap (+0.2%) and the FBM Fledgling (+0.5%) rebounded, alongside most of the broader market players.

• Market breadth turned slightly positive as winners trounced the losers on a ratio of 390-to-325 stocks. Traded volumes, however, narrowed by 7.9% 1.79 bln shares due to the lack of fresh trading catalysts.

• FBM KLCI laggards constitute of Hong Leong Financial Group (-18.0 sen), Sime Darby Plantation (-11.0 sen), Hap Seng Consolidated (-5.0 sen), Petronas Chemicals (-5.0 sen) and Genting (-4.0 sen). Broader market decliners, meanwhile, were Panasonic Manufacturing (-44.0 sen), BAT (-38.0 sen), Genting Plantations (-33.0 sen), Bursa Malaysia (-16.0 sen) and Allianz (- 12.0 sen).

• On the flipside, broader market winners were United Plantations (+38.0 sen), Lafarge Malaysia (+21.0 sen), Heineken Malaysia (+18.0 sen), Hong Leong Industries (+18.0 sen) and Rapid Synergy (+15.0 sen). Nestle (+RM1.30), meanwhile, extended its gains, alongside Kuala Lumpur Kepong (+12.0 sen), MISC (+11.0 sen), PPB Group (+10.0 sen) and Hong Leong Bank (+8.0 sen).

• Notable Asian benchmark indices closed slightly higher on Friday as investors shrugged off the recent geopolitical unrest in Hong King and rising trade protectionism. The Nikkei eked out gains, albeit capped by the decline in materials and energy-related stocks, together with the Shanghai Composite (+0.3%) on expectations of increasing government stimulus. The Hang Seng Index (+0.9%) continued its upward trajectory, while ASEAN equities were mostly positive.

• Wall Street - the Dow (+1.2%), the S&P 500 (+1.4%) and the Nasdaq (+1.7%) rallied on expectations of interest rate cuts from key central banks and strongerthan-expected housing data, as well as the positive sentiment amongst the techstocks. Even so, U.S. stocks marked their third straight week of decline amid recession and trade-related concerns.
• European equities closed mostly higher on Friday, boosted by gains in chipmakers following positive corporate earnings of their U.S. counterparts. The FTSE added 0.7% despite thin trading volume due to an unexpected technical outage in the London Stock Exchange. The CAC (+1.2%) also rallied, alongside the DAX (+1.3%) as hopes for more fiscal stimulus lifted banking stocks.

THE DAY AHEAD

• We expect stocks on Bursa Malaysia to tip higher over the near term, recovering in tandem with the gains on major overseas indices at the end of last week on optimism that the trade dispute between the U.S. and China will deescalate.

• As it is, the FBM KLCI is holding on to the 1,600 points level after its recent slide, a level that we continue to think that there will be ample support. Still, the overall market sentiments remains morbid with few sustainable noteworthy leads for market players to follow.

• Therefore, we think that a firmer recovery remains elusive for now, albeit we think that the near term recovery could be decent on mild bargain hunting actions. Hence, we think that the 1,610 level will be the next target over the near term, followed by the 1,620 level. The supports are at the 1,580-1,590 levels.

• We also see the lower liners and broader market shares following the lead of the heavyweights and head higher over the near term, but we also think that the gains could be measured as the wariness over the state of the market is likely to remain and keep the potential gain in check.

COMPANY UPDATE

• Teo Seng Capital Bhd’s 2Q2019 net profit stood at RM5.1 mln vs. a net loss of RM0.5 mln recorded in the previous corresponding quarter, lifted by higher production and sale of chicken eggs that offset the lower average selling prices (ASP) of chicken eggs. Revenue for the quarter climbed 18.0% Y.o.Y to RM121.2 mln.

• For 1H2019, cumulative net profit surged 346.8% Y.o.Y to RM27.2 mln. Revenue for the period climbed 24.8% Y.o.Y to RM271.8 mln. The reported results came below expectations, making up to 43.7% of our previous net profit estimate of RM62.2 mln. The reported revenue also came slightly below our expectations, amounting to 47.8% of our full-year forecast of RM568.1 mln. The variance in the bottom line was mainly due to the sharper-than-expected decline in average selling prices of chicken eggs.

Comments

• With the reported earnings coming below our expectations, we trim our net profit forecast by 34.1% and 34.3% to RM41.0 mln and RM45.2 mln for 2019 and 2020 respectively, reflecting the steeper-thanexpected decline in ASP of chicken eggs. We maintain our BUY recommendation on Teo Seng, but with a lower target price of RM1.21 (from RM1.65).

• We arrive our target price by ascribing a lower target PER of 8.0x (from 10.5x) to its revised 2020 EPS of 15.1 sen. The downward revision of the target PER is in line with the decline across its peer’s valuations, which is at 25% discount to its peers average valuation of 10.7x.

COMPANY BRIEF

• Pintaras Jaya Bhd has secured a RM91.0 mln (S$30 mln) piling contract in Singapore. The project is to commence in October 2019 for nine months. This now brings total cumulative contracts secured by the group to 10 projects worth RM247.0 mln. (The Edge Daily)

• Pentamaster Corp Bhd’s 2Q2019 net profit rose 40.1% Y.o.Y to RM19.5 mln on greater sales from its automated test equipment and factory automation solutions segments. Revenue for the quarter increased 18.0% Y.o.Y to RM120.7 mln.

• For 1H2019, cumulative net profit grew 84.7% Y.o.Y to RM39.1 mln. Revenue for the period gained 18.8% Y.o.Y to RM239.5 mln. (The Edge Daily)

• Dialog Group Bhd is increasing its stake in Haliburton Bayan Petroleum Sdn Bhd (HBP) to 75.0% for US$8.2 mln (RM34.5 mln) cash. The group will purchase an additional 25.0% stake from HBP’s other shareholder, Asia Energy Services Sdn Bhd, thus bringing its stake in HBP to 75.0%.

• HBP is an independent technical service contractor for the Oilfield Services Contract (OSC) with Petronas Carigali Sdn Bhd. The contract is for the provision of contractor services required for the enhancement of recoverable reserves from the Bayan Field, near Bintulu, Sarawak and having a term of 24 years. (The Edge Daily)

• Elsoft Research Bhd’s 2Q2019 net profit declined 47.7% Y.o.Y to RM6.3 mln on lower sales for the quarter that decreased 48.9% Y.o.Y to RM12.3 mln.

• For 1H2019, cumulative net profit fell 44.4% Y.o.Y to RM11.2 mln. Revenue for the period shrank 44.8% Y.o.Y to RM22.2 mln. (The Edge Daily)

• Vizione Holdings Bhd is looking to raise up to RM59.1 mln via a private placement of up to 10.0% of its total shares to third party investors to be identified later. Proceeds from the exercise will be used to partly finance existing construction projects, as well as for the payment of tender/contract deposits and/or performance bonds for new projects. The exercise entails an issuance of up to 62.2 mln new shares. (The Edge Daily)

Source: Mplus Research - 19 Aug 2019