Rebound To Sustain

• The FBM KLCI made a recovery at Thursday’s close, lifted by bargainhunting in selected stocks and gains in Ambank as investors cheered the bank’s upbeat 1QFY20 earnings. The lower liners, however, continued to be downtrend except for the FBM Ace (+0.9%). The majority of the broader market, meanwhile, closed in the green, with the Healthcare sector leading the gains.

• Market breadth was negative as losers outweighed the gainers on a ratio of 401-to-382 stocks, while traded volumes gained slightly by 2.1% 2.04 bln shares on the back of mild bargain-hunting activities in the heavyweights.

• Main Board top performers were Nestle (+60.0 sen), Ambank (+24.0 sen), Hap Seng Consolidated (+18.0 sen), Petronas Gas (+14.0 sen) and Maxis (+10.0 sen). Other gainers, meanwhile, include sin-stocks like Heineken Malaysia (+58.0 sen) and Carlsberg (+18.0 sen), alongside Fraser & Neave (+28.0 sen), Amway (+20.0 sen), Hap Seng Consolidated (+18.0 sen) and LPI Capital (+18.0 sen).

• Notable broader market laggards were United Plantations (-38.0 sen), BAT (- 32.0 sen), Allianz (-16.0 sen), Cahya Mata Sarawak Bhd (-13.0 sen) and Batu Kawan (-12.0 sen). The only four decliners on the key-index were Petronas Dagangan (-4.0 sen), Genting Malaysia (-2.0 sen), Genting (-2.0 sen) and CIMB (-1.0 sen).

• Key regional benchmark indices ekedout gains as investors digested the Fed’s July meeting minutes. The Nikkei (+0.1%) was almost flat on expectations that manufacturing activity in Japan will contract for the fourth-straight month. The Shanghai Composite turned positive in the eleventh hour, although the Hang Seng Index weakened by 0.8% to 26,048.7 points. ASEAN equities were also mostly in the negative territory on Thursday.

• Wall Street was mostly bearish following soft economic data and a less dovish stance from the U.S. Federal Reserve. The Dow (+0.2%) beat the general sentiment and closed higher, but the S&P 500 and the Nasdaq lost 0.1% and 0.4% respectively.

• Notable European stockmarkets - The FTSE (-1.1%), the DAX (-0.5%) and the CAC (-0.9%) tumbled ahead of the G7 summit in Jackson Hole and recession fears following the inversion of the U.S. bond yields for the second time in the month.

THE DAY AHEAD

• While the key index managed to mount an overdue recovery yesterday, the broad market conditions are still looking insipid with the broader market becoming mixed. Nevertheless, the rebound among the index linked stocks are welcomed to break its oversold spell and to climb back above the psychological 1,600 points level.

• Going into the final trading day of the week, we see further near term recovery for the index linked stocks as they continue to adjust from its bout of oversold. At the same time, overseas equities are still showing signs of stability that could aid the key index’s near term recovery with market players keeping a keen eye on interest rate and trade developments.

• Also, the ongoing results reporting season is moving into its peak period and will be scrutinised for hints on corporate earnings for the rest of the year. With the recovery set to continue, the next target will be the 1,610 level, followed by the 1,620 level. The supports, on the other hand, are at 1,600 and 1,590 respectively.

• We think the lower liners could continue to stay largely sideways over the near term as they are still finding it hard to get out of second gear and remaining mixed. As it is, buying interest among the lower liners is still tepid and this leaves little room for significant near term upsides and this will prolong the broadly sideway trend, in our view.

COMPANY UPDATE

• Serba Dinamik Holdings Bhd’s 2Q2019 net profit rose 27.0% Y.o.Y to RM130.4 mln, underpinned by improved contribution from higher orderbook across both operational & maintenance (O&M) and engineering, procurement, construction and commissioning (EPCC) segments. Revenue for the quarter gained 41.6% Y.o.Y to RM1.14 bln. For 1H2019, cumulative net profit added 24.2% Y.o.Y to RM242.6 mln. Revenue for the period gained 38.3% Y.o.Y to RM2.12 bln.

Comments

• The reported earnings came slightly above our expectations, accounting to 55.5% of our previous full year net profit forecast of RM437.4 mln for 2019. Similarly, the reported revenue accounted to 54.2% of our full year estimate of RM3.91 bln.

• As the reported earnings came above our expectations, we raised our earnings forecast by 10.6% and 19.5% to RM483.9 mln and RM540.5 mln for 2019 and 2020 respectively, reflecting the faster execution and improved overseas margins from its rising orderbook, coupled with the lower effective tax rate at 10.0% (pervious assumption 11.0%).

• Consequently, we maintain our BUY recommendation on Serba Dinamik with a higher target price of RM5.52 (from RM4.65). We arrive at our target price by ascribing a PER of 15.0x to its revised forecast 2020 EPS of 36.8 sen. The ascribed target PER similar with midlarge cap oil & gas peers average of 16.0x.

COMPANY BRIEF

• AMMB Holdings Bhd’s 1QFY20 net profit grew 12.6% Y.o.Y to RM391.5 mln on the back of higher trading and insurance income. Revenue for the quarter improved 10.1% Y.o.Y to RM2.39 bln. (The Star Online)

• Petron Malaysia Refining and Marketing Bhd’s 2Q2019 net profit fell 39.2% Y.o.Y to RM56.2 mln, impacted by the lower gross profit and unrealised commodity losses. Revenue for the quarter declined 3.3% Y.o.Y to RM3.02 bln.

• For 1H2019, cumulative net profit decreased 30.8% Y.o.Y to RM113.7 mln. Revenue for the period slipped 1.4% Y.o.Y to RM5.77 bln. (The Star Online)

• AirAsia X Bhd’s 2Q2019 net loss widened to RM207.1 mln vs. a net loss of RM57.5 mln recorded in the previous corresponding quarter, impacted by the loss of disposal of three aircraft under the share and lease back during the quarter amounting to RM72.5 mln, coupled with the weakening of the Ringgit against the U.S. Dollar. Revenue for the quarter fell 4.7% Y.o.Y to RM1.01 bln.

• For 1H2019, cumulative net loss ballooned to RM163.8 mln, compared with net losses of RM16.0 mln recorded in the previous corresponding period. Revenue for the period fell 6.3% Y.o.Y to RM2.18 bln. (The Star Online)

• Allianz Malaysia Bhd’s 2Q2019 net profit rose 30.9% Y.o.Y to RM117.7 mln, mainly due to higher contribution from the life insurance segment with the fair value gain arising from the change in interest rate. Revenue for the quarter increased 4.5% Y.o.Y to RM1.37 bln.

• For 1H2019, cumulative net profit added 22.3% Y.o.Y to RM216.6 mln. Revenue for the period gained 5.1% Y.o.Y to RM2.71 bln. (The Sun Daily)

• Media Prima Bhd’s 2Q2019 net loss stood at RM8.8 mln against a net profit of RM32.0 mln recorded in the previous corresponding quarter, on lower contribution from the traditional revenue segment such as publishing and television networks. Revenue for the quarter dropped 13.3% Y.o.Y to RM296.8 mln.

• For 1H2019, cumulative net loss stood at RM49.2 mln vs. a net profit of RM10.1 mln recorded in 1H2018. Revenue for the period declined 14.0% Y.o.Y to RM535.9 mln. (The Edge Daily)

• Perdana Petroleum Bhd’s 2Q2019 net loss stood at RM5.4 mln vs. a net profit of RM10.1 mln recorded in the previous corresponding quarter that saw a hefty foreign exchange gain of RM25.8 mln. Revenue for the quarter, however, grew 32.1% Y.o.Y to RM62.8 mln.

• For 1H2019, cumulative net loss narrowed to RM38.4 mln, from net loss of RM56.6 mln recorded in the previous corresponding period. Revenue for the period rose 37.6% Y.o.Y to RM88.5 mln. (The Edge Daily)

• Kelington Group Bhd’s 2Q2019 net profit rose 15.9% Y.o.Y to RM5.1 mln, helped by higher contribution from its Singapore and Malaysian operations, which more than offset the decline from its China and Taiwan operations. Revenue for the quarter gained 6.6% Y.o.Y to RM95.1 mln.

• For 1H2019, cumulative net profit grew 15.5% Y.o.Y to RM9.9 mln. Revenue for the period, however, eased 2.4% Y.o.Y to RM171.6 mln. A first interim dividend of one sen per share was declared. (The Edge Daily)

• Tropicana Corp Bhd’s 2Q2019 net profit added 2.9% Y.o.Y to RM39.0 mln, on higher progress billings across some of its key existing ongoing projects. Revenue for the quarter grew 6.4% Y.o.Y to RM299.5 mln.

• For 1H2019, cumulative net profit rose 0.8% Y.o.Y to RM85.1 mln. Revenue for the period, however, fell 30.7% Y.o.Y to RM509.2 mln. (The Edge Daily)

• ARB Bhd has signed a contract with a Cambodia agriculture products firm to provide an enterprise resource planning (ERP) system. The contract with Tatan Land Co Ltd is expected to contribute an estimated US$20 mln (RM84.0 mln) to the group’s topline per annum. (The Edge Daily)

Source: Mplus Research - 23 Aug 2019