Due For Pullback

• The FBM KLCI (+1.1%) trended higher for the third straight session, boosted by gains in banking heavyweights on reports that Bank Negara may keep its benchmark interest rates unchanged towards end of the year. Consequently, the key index recovered all its’ monthly loses to close 0.9% M.o.M higher. The lower liners – the FBM Small Cap (+0.9%), FBM Fledgling (+0.9%) and FBM ACE (+1.8%) all advanced, while the broader market ended mostly higher.

• Market breadth turned positive as advancers overturned decliners on a ratio of 539-to-307 stocks. Traded volumes added 29.7% to 2.95 bln shares amid the positive market sentiment.

• Banking heavyweights like Public Bank (+90.0 sen), Hong Leong Financial Group (+42.0 sen), Hong Leong Bank (+20.0 sen) and CIMB (+16.0 sen) rallied on the local bourse, while KLK added 14.0 sen. Key winners on the on the broader market include Carlsberg (+36.0 sen), Vitrox (+28.0 sen), UWC Holdings (+19.0 sen), Heineken (+16.0 sen) and Alliance Bank (+15.0 sen).

• Pharmaniaga sank 29.0 sen after the Health Ministry is ending the company’s concession for medical supply distribution, while other notable decliners on the broader market were TimedotCom (-18.0 sen), Ajinomoto (- 12.0 sen), MPI (-12.0 sen) and Daibochi (-10.0 sen). Meanwhile, PPB Group (- 18.0 sen), Maxis (-6.0 sen), MISC (-5.0 sen), Top Glove (-5.0 sen) and Press Metal (-4.0 sen) slipped on the key index.

• Asian benchmark indices closed mostly higher, taking cue from the positive sentiment on Wall Street overnight as the Nikkei and Hang Seng Index added 0.4% and 0.9% respectively. The Shanghai Composite fell 0.4%, while ASEAN equities ended the day mostly higher on Thursday.

• U.S. stockmarkets retreated as the Dow fell 0.5% as investors casted doubts over the "Phase 1" of Sino-U.S. trade deal. On the broader market, the S&P 500 (-0.3%) declined with nine of the eleven major sectors in the red, while the Nasdaq finished 0.1% lower.

• Major European indices – the FTSE (- 1.1%), CAC (-0.6%) and DAX (-0.3%), all erased their intraday gains, bogged down by a series of weak corporate earnings from Royal Dutch Shell, Air France KLM and Eutelstat. On a brighter note, Eurozone's unemployment rate stood at 7.5% in September 2019 - the lowest level since July 2008.

The Day Ahead

• It was a stronger-than-expected performance that shored the FBM KLCI to end on a positive note in October 2019 as the key index outperformed its’ regional peers to play catch-up with the gains in global equities over the past month. The positive sentiment also spilled over towards the broader market as gains were evident in the technology and construction stocks.

• Going forward, we reckon that quick profit taking activities may be on the cards. After racking some 3.0% gains over the past couple of weeks with the key index already at the overbought zone, a retreat is in store. The fresh uncertainties over the Sino-U.S. trade deal may also serve as an excuse for the profit taking activities to take precedence.

• Nevertheless, we think that pullback will be mild with key support located towards the 1,680 and 1,572 levels respectively. On the upside, gains are likely to be capped towards 1,615 level, followed by the 1,623 level, should the 1,600 psychological level breached.

• The lower liners may see continuous rotational play on the back of the improved market undertone. However, market condition may turn cautious as we enter into the quarterly financial reporting month with corporate earnings, in general may remain unexciting.

COMPANY BRIEF

• The details of the proposed acquisition of four Gamuda Bhd toll concessionaires, which were supposed to be finalised on 31st October, 2019 between Gamuda and the Government, has been extended for another two months, with the latest completion date fixed no later than 31st March, 2020.

• To recap, MoF Inc had offered to pay RM4.5 bln cash and to take over the liabilities of the four toll concessionaires in the Klang Valley that Gamuda holds equity interest earlier in June. This include concessionaires like Kesas Sdn Bhd (KESAS), Sistem Penyuraian Trafik Kl Barat Sdn Bhd (SPRINT), Lingkaran Trans Kota Sdn Bhd (LITRAK) and Syarikat Mengurus Air Banjir & Terowong Sdn Bhd (SMART). (The Edge Daily)

• Public Bank Bhd has inked a Memorandum of Understanding (MoU) with China Construction Bank (M) Bhd to jointly-develop business opportunities across Cambodia, Malaysia and China. Separately, the banking giant has also issued RM500.0 mln nominal Subordinated Sukuk Murabahah. The proceeds will qualify as Tier 2 regulatory capital for Public Bank and its subsidiaries. (The Star Online)
• ACE Market-listed on-site and off-site enterprise data management (EDM) and data storage solutions firm Kronologi Asia Bhd plans to grow its customer base by at least 40.0% to 50.0% via strategies including seeding programmes, which allows new customers to test out services offered before onboarding, while existing customers are offered new and innovative services solutions. Currently, the group has a diversified customer base of 650 clients and is banking on its services segment to propel this next stage of growth. (The Edge Daily)

• Scomi Energy Services Bhd's external auditor Messrs KPMG PLT has expressed material uncertainty over the group's ability to continue as a going concern based on its FY19 financial statements. Scomi also triggered the Practice Note 17 (PN17) criteria as its shareholders’ equity on a consolidated basis has fallen below 50.0% of its issued share capital as at 30th June, 2019. (The Edge Daily)

• Pharmaniaga Bhd's share price took a beating after the Health Ministry announced that the company's 10-year concession will not be renewed. Health Minister Datuk Seri Dr Dzulkefly Ahmad was quoted by the media as saying that there would be no more concessionaires for logistics and distribution services for medical supplies and an open tender system would be introduced instead. (The Star Online)

• Sunway Bhd is acquiring three purposebuilt student accommodations in the UK, collectively worth some RM202.8 mln, via its recently established private trust, the Sunway Residence (Guernsey) Ltd (SRG). (The Edge Daily)

• Mesiniaga Bhd has clinched a contract to build new infrastructure for the Accountant General's Department of Malaysia (AGD) under the Ministry of Finance (MoF) for RM261.6 mln (The Edge Daily)

• T7 Global Bhd has been awarded three new jobs worth approximately RM50.0 mln from Petronas Carigali Sdn Bhd, Petrofac (Malaysia-PM304) Ltd and SapuraOMV Upstream (PM) Inc and SapuraOMV Upstream (Sarawak) Inc. (The Star Online)

• Sime Darby Bhd has appointed Datuk Abdul Rahman Bin Ahmad as its nonindependent and non-executive Chairman. The latter was formerly the President-cum-group Chief Executive Officer (CEO) of Permodalan Nasional Bhd. (The Edge Daily)

• Majuperak Holdings Bhd has appointed Nizran Noordin — a former private secretary to the Perak Chief Minister — as group CEO. Nizran Noordin will replace Mohd Ariff Yeop Ishak, who resigned as Managing Director-cum-group CEO, but who has now been re-designated executive Chairman. To recap, the Perak State Development Corp (PKNP) subsidiary has had four different CEOs over the last two and a half years. (The Edge Daily)

• Lotte Chemical Titan Holding Bhd's (LCT) 3Q2019 net profit fell 58.0% Y.o.Y to RM91.3 mln, from RM216.9 mln in the same period a year ago, weighed down by thinning margins due to weaker ASPs of polymer products. Revenue also fell 10.0% Y.o.Y to RM2.17 bln, from RM2.42 bln last year. This comes following the diversion of cheaper polyolefin supply from the US into Southeast Asia that pressured regional product prices amid ongoing U.S.-China trade war and softening of global economic growth. (The Star Online)

• British American Tobacco (Malaysia) Bhd‘s (BAT Malaysia) 3Q2019 net profit plunged 42.0% Y.o.Y to RM84.8 mln, from RM146.3 mln a year ago, mainly due to lower sales volume, while revenue lost 20.6% Y.o.Y to RM584.3 mln, compared with RM735.5 mln in 3Q2018. The group continues to worry about the lack of progress on the reduction of illegal cigarette trade, which has been pressuring sales. (The Edge Daily)  

Source: Mplus Research - 1 Nov 2019