Looking For Follow Through Gains

• The FBM KLCI gained ground yesterday, albeit with minor upsides to break its downward spell on mild bargain hunting activities ahead of the announcement on Malaysia government bond’s position in the World Bond Index and the overnight gains on Wall Street. The lower liners also made mild headway, along with the most of the broader market shares.

• Still, fresh buying was selective as gainers were only marginally ahead of losers on a ratio of 398-to-370 stocks. The gains were also on low participation as traded volumes slipped 17.4% to just 1.81 bln shares amid the continuing wariness over the market’s direction.

• Among the FBM KLCI components, Hong Leong Financial Group rose 26.0 sen, followed by Petronas Gas (+16.0 sen), KL-Kepong (+18.0 sen) and Maybank (+8.0 sen). On the broader market, consumer bellwethers like Carlsberg (+50.0 sen), and Dutch Lady (+40.0 sen) gained. Scientex rose 26.0 sen after reporting strong quarterly earnings, while Degem rose 22.0 sen after its major shareholders announced plans to take the company private.

• Among the top losers were BAT (-22.0 sen), plantation giants like United Plantations (-16.0 sen) and Genting Plantations (-13.0 sen), followed by Lafarge Malaysia (-12.0 sen) and Pentamaster (-11.0 sen). On the big board, Maxis (-19.0 sen), Petronas Dagangan (-12.0 sen) and Malaysia Airports (-6.0 sen) were the main losers for the day.

• Asian stocks were generally positive with Japanese stocks rising slightly after the U.S and Japan agreeing to an initial trade deal that would delay tariffs on Japanese automobiles. The Nikkei rose 0.1%, but China stocks lost ground on still uncertain outcome of its trade negotiations with the U.S. The Hang Seng, however, edged higher by 0.4%. Meanwhile, ASEAN equities were broadly higher at the close, save for the STI that closed unchanged.

• The Dow lost ground overnight, shedding 0.3% as markets shift their attention to impeachment highlights against U.S. President Donald Trump. The S&P 500 also ended lower (-0.2%), while the Nasdaq lost 0.1%.

• European equities, however, rose with the FTSE (+0.8%) registering the strongest gains on gains in selected stocks to offset the profit warnings from several blue chips. The CAC (-0.7%) and DAX (- 0.7%) also trended higher.

THE DAY AHEAD

• With stocks making headway yesterday, as anticipated, the meek spell could have been cast aside for now and we see further near-term gains that could allow the key index to end the week on a positive note.

• Although Malaysian government bonds remains on the FTSE Russel watch list, the decision could provide some reprieve over the near term to accord the government some space to add liquidity to the bonds. With the exclusion risk abating for now, we also see the positivity extending to Malaysian equities over the near term and to cast aside the slight weakness on Wall Street overnight.

• Therefore, we expect the gains to be augmented with the key index potentially re-challenging the 1,610 level, albeit we think that the 1,620 level remains a distant target for now. Meanwhile, the 1,600 points level is the immediate support, followed by the 1,590 level.

• The lower liners and broader market shares also made headway yesterday and we think the gains could extend with bouts of buying interest emerging. The improved buying is also set to help the FBM Small Cap, FBM Fledgling and FBM ACE indices end the week on a more positive note.

COMPANY UPDATE

• V.S. Industry Bhd’s (VSI) 4QFY19 net profit grew 15.2% Y.o.Y to RM48.4 mln, compared to RM42.0 mln a year ago, lifted by higher domestic sales orders coupled with increased productivity, lower initial setup costs and better product mix. Revenue, however, only gained slightly to RM1.03 bln (+1.9% Y.o.Y), from RM1.01 bln in the same quarter last year.

• Full year net profit came in at RM157.5 mln (+4.3% Y.o.Y), from RM151.1 mln in the previous corresponding period as weaker contributions from overseas operations shadowed the improved domestic earnings. On that note, revenue from China was almost halved in FY19, while pre- losses almost quadrupled to RM83.0 mln, from RM20.9 mln earlier – led by prolonged underutilisation and additional costs (i.e.: impairment of fixed assets) arising from its exacerbated downsizing activities. The group has announced a fourth interim dividend of 0.8 sen and a final dividend of 0.8 sen per share, payable on 31st October 2019.

Comments

• The latest results were above expectations as net profit came in about 15.9% more than our forecast of RM135.9 mln, mainly due to significantly higherthan-expected non-controlling interests estimates. Other than that, interest costs were also lower than initially accounted for. Revenue, however, were in-line with our forecast at RM3.88 bln (or 102.6% our full-year estimates).

• After the unexpectedly positive performance, we upped our FY20 earnings slightly by 2.6% Y.o.Y to RM165.9 mln, while revenue forecasts were more or less maintained. The improved earnings were mainly due to higher margins amid better floor utilisation and increased cost efficiency. We also introduced our FY21 forecast net profit and revenue of RM189.8 mln and RM4.35 bln respectively.

• With that, we upgrade our call on VSI to a BUY (from Hold) with a higher target price of RM1.50 (from RM1.25) as we still foresee a positive growth trend in VSI’s earnings, backed by higher orders from a notable household cleaning brand and improved efficiency. Our target price is derived by ascribing to a higher target PER of 17.0x to its FY20 EPS of 9.0 sen, due to improved sentiment in the EMS industry as local players benefit from trade diversion activities.

• The target PER remains 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

• Dialog Group Bhd has launched Phase 3A of its 1,200-ac. Pengerang Deepwater Terminals (PDT) development. This comes following a long-term storage agreement (LTSA) with BP Singapore Pte Ltd for the construction of 430,000 cu.m storage tanks and the provision of storage and handling services in Phase 3A.

• Phase 3A is the first parcel of PDT’s Phase 3, where the construction of common tankage facilities, including shared infrastructure, and deepwater marine facilities are already underway. Phase 3 is being developed on about 300 ac. of land within PDT with an indicative initial investment cost of RM2.50 bln. (The Star Online)

• Scientex Bhd’s 4QFY19 net profit jumped 60.9% Y.o.Y to RM133.4 mln on the back of double-digit growth in both the manufacturing and property development segments. Revenue for the quarter rose 30.2% Y.o.Y to RM938.8 mln

• For FY19, cumulative net profit expanded 17.3% Y.o.Y to RM333.7 mln. Revenue for the year rose 24.8% Y.o.Y to RM3.20 bln. A final dividend of 10.0 sen per share has been declared (The Star Online)

• Top Glove Corp Bhd’s 4QFY19 net profit fell 13.3% Y.o.Y to RM80.1 mln, owing to increased competition in the natural rubber glove segment, accompanied by a spike in natural rubber latex prices. Revenue for the quarter declined 2.8% Y.o.Y to RM1.19 bln.

• For FY19, cumulative net profit contracted 12.7% Y.o.Y to RM370.6 mln. Revenue for the year, however, rose 13.7% Y.o.Y to RM4.80 bln. A final dividend of four sen a share was declared. (The Star Online)

• Bumi Armada Bhd have secured a RM317.0 mln loan to finance projects in India and Malta. The loan, comprising a RM128.0 mln three-year term to BA98/2 and RM189.0 mln six-year term for Armada Floating Gas Storage Malta, was from Usaha Tegas Sdn Bhd’s unit, Mezzanine Equities N.V.

• The project relates to the charter and operation of a floating production storage and offloading facility for deployment at NELP Block KG - DWN 98/2 Development Project Cluster-II field located on the east coast of Kakinada, offshore India. (Bernama)

• Poh Kong Holdings Bhd’s 4QFY19 net profit grew 18.4% Y.o.Y to RM10.6 mln year on the steady climb of gold prices. Revenue for the quarter, however, dropped 14.8% Y.o.Y to RM231.9 mln.

• For FY19, cumulative net profit expanded 10.6% Y.o.Y to RM25.9 mln. Revenue for the year was flat at RM1.00 bln. It plans to pay a first and final dividend of 1.2 sen. (The Edge Daily)

• Aeon Credit Service (M) Bhd’s 2QFY20 net profit dropped 39.1% Y.o.Y to RM49.1 mln, on increased impairment losses. Revenue for the quarter, however, was up by 21.8% Y.o.Y to RM404.5 mln.

• For 1HFY19, cumulative net profit fell 25.7% Y.o.Y to RM133.7 mln. Revenue for the period, however, added 19.0% Y.o.Y to RM783.0 mln. An interim dividend of 22.3 sen per share, payable on 7th November 2019, was declared. (The Edge Daily)

• Usaha Tegas Sdn Bhd gave Bumi Armada Bhd a lifeline by offering loans of up to US$75.0 mln (RM317.0 mln). Usaha Tegas is Bumi Armada's single largest shareholder with a 34.9% stake.

• Part of the financing is also to fund Bumi Armada's 30.0% equity interest in a joint-venture project with Shapoorji Pallonji Oil & Gas Pte Ltd, in connection with the charter and operation of a floating production storage and offloading facility for deployment in offshore India. The remainder is to refinance an existing US$45.0 mln bridge loan facility for a floating storage unit. (The Edge Daily)

• GDB Holdings Bhd has clinched its largest single contract todate valued at RM517.0 mln for construction works on the Park Regent residential development located at Desa Park City. The Park Regent premium residential development comprises two 54-storey blocks with 505 apartment units on a five-storey podium. The contract, which will last 37 months starting 2nd December, brings the group's total outstanding order book to about RM1.00 bln and will provide revenue contribution until 2022. (The Edge Daily)

• Hai-O Enterprise Bhd's 1QFY20 net profit fell 29.6% Y.o.Y to RM7.7 mln, on lower contribution from its multi-level marketing (MLM) division. Revenue for the quarter declined 17.5% Y.o.Y to RM66.1 mln. (The Edge Daily)

• Pentamaster Corp Bhd (PCB) has signed an agreement to acquire a diecast and medical machine manufacturer for RM21.0 mln, a move for diversification into the growing medical segment of the automated equipment industry. (The Edge Daily)

• Ho Hup Construction Bhd plans to raise up to RM17.8 mln via a private placement of up to 10.0% of its total issued shares to third party investor(s) to be identified later. It plans to use half of that to repay borrowings, with the remainder mostly as working capital. (The Edge Daily)

• TRC Synergy Bhd has been reinstated as the developer of a civil servant housing development project in Putrajaya by Perbadanan Putrajaya (PJC), from which it was axed seven months ago on the grounds of national interest. (The Edge Daily)

Source: Mplus Research - 27 Sept 2019