Wariness Returns To Prompt Profit Taking

• Tracking the gains on Wall Street overnight, the FBM KLCI (+1.1%) extended its gains as the key index recovered all its weekly losses to close 0.2% W.o.W higher ahead of the extended weekend break. The lower liners, however, finished mostly lower as the FBM Small Cap and FBM ACE fell 0.03% each, but all 13 major sectors on the broader market finished higher.

• Market breadth turned positive as gainers outmuscled losers on a ratio of 517-to-322 stocks, while 395 stocks traded unchanged. Traded volumes added 11.1% to 2.22 bln shares amid the more positive market sentiment.

• More than two thirds of the key index components advanced, anchored by Petronas Dagangan (+66.0 sen), followed by Hong Leong Financial Group (+54.0 sen), Nestle (+50.0 sen), KLK (+38.0 sen) and Petronas Gas (+22.0 sen). Significant gainers on the broader market were Fraser & Neave (+68.0 sen), MPI (+46.0 sen), Dutch Lady (+34.0 sen), Allianz (+32.0 sen) and New Hoong Fatt (+29.0 sen).

• In contrast, notable decliners on the broader market were Heng Yuan (-20.0 sen) and Spritzer (-17.0 sen), while plantations stocks like Far East Holdings (-13.0 sen), United Plantations (-12.0 sen) and Batu Kawan (-10.0 sen) fell. There were only two decliners on the FBM KLCI – Malaysia Airport Holdings (-32.0 sen) and PPB Group (- 22.0 sen).

• Asian benchmark indices closed mostly lower as the latest round of tariffs on Chinese goods took effect. The Nikkei slipped 0.4%, while the Hang Seng index declined 0.4% amid the on-going political unrest following another wave of demonstration over the weekend. The Shanghai Composite, however, jumped 1.3% to close above the 2,900 psychological level. ASEAN equities, meanwhile, ended mostly higher yesterday.

• U.S. stockmarkets were closed for the Labor Day public holiday.

• European benchmark indices – the FTSE (+1.0%), CAC (+0.2%) and DAX (+0.1%), all rose after British Parliament seeks for a vote that would delay Brexit by three months unless there’s a new accord with the European Union by mid-October 2019.

The Day Ahead

• It was a stronger-than-expected end to last week’s trading, and for the month, that also helped the key index to stage an overdue rebound from oversold. Going into the start of the month, however, we think that cautiousness will again prevail after the U.S. made good on its promise to raise tariffs on China-made goods and this is likely to dampen sentiments on Bursa Malaysia again.

• As such, we expect quick profit taking activities to set-in again to erase some of last Friday’s gains amid the more cautious market undertone. In addition, there will be fewer immediate catalysts as the results reporting season has ended with corporate results still mostly on the mixed-to-lower side.

• For now, we expect the 1,600 points support to hold as the pullback is likely to be mild. There is an interim support at the 1,610 level which we think is unlikely to hold, while the resistances are at the 1,620 and 1,626 levels repectively.

• While the key index stocks made significant headway last Friday, the lower lines and broader market shares were left dithering with few fresh catalysts. We think that the indifferent trend is likely to persist as retail players’ interest is still mostly indifferent as there remains little clarity in the market’s near term direction.

Company Update

• Serba Dinamik Holdings Bhd has proposed i.) a share split involving a subdivision of every two existing ordinary shares, ii.) a bonus issue of 881.1 mln new shares on the basis of two bonus shares for every five subdivided Shares held, and iii.) an issuance of 881.1 mln free warrants on the basis of two warrants for every five subdivided shares held.

Comments

• We are positive on the abovementioned corporate proposals as the proposed share split and bonus issue of shares and warrants is an approach to reward existing shareholders and, in turn could enhance the trading liquidity of Serba DInamik shares. Upon completion, Serba Dinamik’s enlarged share issue will be 3.08 bln shares (from 1.47 mln shares) plus additional 881.1 mln warrants.

• The corporate proposals will not have any material impact on the group’s earnings. Therefore, we leave our earnings forecast unchanged and we maintained our BUY recommendation with an unchanged target price of RM5.52. We arrive at our target price by ascribing a target PER of 15.0x to its forecast 2020 EPS of 36.8 sen. The ascribed target PER is similar to mid-large cap oil & gas peers’ average of 16.0x.

• V.S. Industry Bhd’s (VSI) 43.3%-owned subsidiary in China, V.S. International Group Limited (VSIG) is expected to report a wider net loss of RMB115.0 mln in FY19, compared to a net loss of RMB9.0 mln last year, based on preliminary assessment. The group has attributed the downfall to the significant decline in revenue as well as an increase in provision of impairment of fixed assets (RMB30.0 mln).

• Meanwhile, the fall in turnover was contributed by several reasons, i.e.: i.) drop in household electronic product (air filters) orders from existing customer, ii.) de-consolidation of results from Qingdao GS Electronics Plastic which was disposed last year, and iii) overall decline in orders from customers amid challenging economic environment.

Comments

• VSI has booked about a net loss of RM33.6 mln (at group level) in 9MFY19 and is expected to recognise the remaining RM35.0 mln loss in 4QFY19. Out the total RM69.0 mln, about RM18.0 mln is contributed by the provision of impairment of fixed assets.

• We think that the group is able to achieve a core net profit of about RM140.0 mln (excluding impairment provisions, net minority interest), which is more or less within the range of our expectations. As we have been made aware of the ongoing shrinkage in VSIG, we have largely accounted for the decline in revenue from China in our estimates and thus maintain our forecasts until further information on the group’s 4QFY19 result announcement due 26th September 2019 (tentative).

• Even so, we downgrade our call on VSI to a HOLD (from Buy) with an unchanged target price of RM1.25 following the runup in price from our last call on 23th July 2019 (RM1.19) as we remain cautiously optimistic over its near-term growth (FY20) trajectory, on the back of progressively higher orders from Bissell and continuous streamlining in China.

• Our target price is derived by ascribing to a unchanged target PER of 14.0x to its FY20 EPS of 8.9 sen. The target PER is also at a premium to its closest competitor, SKP Resources Bhd, after taking account the group’s leading position in Malaysia’s EMS industry that is strengthened by its wide array of supply chain services and solid earnings track-record.

COMPANY BRIEF

• IHH Healthcare Bhd's 2Q2019 net profit added about 12.0% Y.o.Y to RM185.0 mln, from RM165.1 mln a year ago, lifted by higher revenue from the hospitals acquired last year: Amanjaya Specialist Centre and Fortis Healthcare, as well as the continuous ramping-up of its Gleneagles Hong Kong Hospital in Hong Kong, and the Acibadem Altunizade Hospital in Turkey, both of which opened their doors in March 2017.

• There was also sustained organic growth from other existing operations. Revenue, meanwhile, grew 37.0% Y.o.Y to RM3.65 bln from RM2.66 bln in the last corresponding period.

• Subsequently, cumulative 1H2019 net profit rose 23.0% Y.o.Y to RM274.5 mln, from RM222.34 mln a year ago, while revenue jumped 32.0% Y.o.Y to RM7.29 bln, from RM5.51 bln earlier. (The Star Online)

• Malaysia Airports Holdings Bhd's (MAHB) 2Q2019 net profit surged 86.0% Y.o.Y to RM160.1 mln, compared to RM86.1 mln, as revenue grew 9.6% Y.o.Y to RM1.26 bln, from RM1.15 bln last year. MAHB also declared an interim dividend of 5.0 sen, to be paid on 1st October this year.
• Even so, cumulative 1H2019 net profit was down to RM309.7 mln (-41.7% Y.o.Y), from RM530.7 mln in 1H2018, despite recording a revenue growth of close to 6.0% Y.o.Y at RM2.51 bln, from RM2.37 bln previously. (The Star Online)

• Supermax Corp Bhd's 4QFY19 net profit jumped 59.0% Y.o.Y to RM15.1 mln, compared to RM9.5 mln a year ago, on higher revenue from global sales of its natural rubber and nitrile rubber gloves. Quarterly revenue, meanwhile, increased 14.1% Y.o.Y to RM376.0 mln, from RM329.5 mln in the same quarter last year.

• Subsequently, the upbeat quarterly earnings lifted the group's full-year net profit to RM123.8 mln (+16.0% Y.o.Y), from RM106.7 mln in the previous year, while revenue expanded 14.2% Y.o.Y to RM1.49 bln, from RM1.3 bln in FY18. (The Edge Daily)

• Sunsuria Bhd Chief Executive Officer (CEO), Koong Wai Seng is resigning from his position after leading the property developer for about three years due to other personal goals and interests. To recap, Koong had replaced Ho Hon Sang as the CEO in 2016. (The Edge Daily)

• AirAsia Bhd inked an agreement for a firm order of 30 A321XLR and 12 additional A330neo aircraft from Airbus to join the budget airline's future longhaul fleet. The new aircrafts is expected to provide the group with greater flexibility to better manage capacity on key routes as well as respond to seasonal demand and an advantage when it comes to exploring opportunities to operate non-stop flights between Southeast Asia and secondary cities in countries like Australia, China and Japan. (The Edge Daily)

• Malaysia Steel Works (KL) Bhd (Masteel) slipped into the red with a 2Q2019 net loss of RM10.4 mln vs. a net profit of RM8.0 mln a year earlier, due to lower sales volume and selling price resulting in lower margin. Revenue also fell to RM294.7 mln from RM324.7 mln previously.

• Cumulative 1H2019 net loss, meanwhile, was up to RM19.1 mln, from a net profit of RM25.7 mln in the yearago period, in-tandem with lower revenue of RM574.9 mln (-24.3% Y.o.Y), from RM759.5 mln a year earlier. (The Edge Daily)

• Tenaga Nasional Bhd's (TNB) 2Q2019 net profit fell 9.7% Y.o.Y to RM1.12 bln, from RM1.24 bln, due to regulatory adjustments which are now accounted for every month starting from 2019, and MFRS 16 Leases. Revenue for the quarter, however, rose to RM12.88 bln, from RM12.50 bln, boosted by higher electricity sales. The group has declared an interim dividend of 30.0 sen per share.

• Cumulative 1H2019 net profit also dropped to RM2.67 bln, from RM3.36 bln, although revenue grew to RM26.12 bln, from RM24.77 bln in 1H2018. (The Star Online)

• Malaysia Building Society Bhd‘s 2Q2019 net profit improved 24.0% Y.o.Y to RM106.2 mln, from RM85.7 mln a year ago, weighed down by lower than expected credit losses, albeit revenue inched higher by 3.0% Y.o.Y to RM817.7 mln, from RM794.1 mln last year.

• Cumulative 1H2019 net profit also more than halved to RM190.1 mln against RM402.5 mln previously, mainly due to higher ECL charged of RM245.4 mln as opposed to an ECL write-back of RM8.0 mln previously, lower interest income and higher other operating expenses. Revenue also retreated to RM1.60 bln, from RM1.61 bln a year earlier. (The Edge Daily)  

Source: Mplus Research - 3 Sept 2019