More Of The Same

• The FBM KLCI (+0.02%) closed barely positive on Friday after lingering in the negative territory for most of the day amid bouts of intraday profit taking moves, before mild bargain hunting activities helped it to end the day with minute gains. The late gains were due to part to Bank Negara’s move to cut banks’ SRR rate to 3.0%, from 3.5%, to boost liquidity. Elsewhere, the FBM Small Cap (+0.3%) and FBM Fledgling (+0.2%) indices also ended the day on a positive note, with the gains attained at the close.

• The late gains also allowed market breadth to remain positive with gainers marginally ahead of losers 419-to-412 stocks. Traded volumes also climbed with 3.10 bln shares done, 18.7% higher than the previous day’s total.

• With the SRR reduction, banks were the big movers with CIMB (+10.0) and Maybank (+8.0 sen) leading the gainers list on the FBM KLCI. Other key index movers include Axiata (+7.0 sen) and Petronas Chemicals (+5.0 sen). In the broader market, the big gainers Shangri La Hotel (+29.0 sen), Vstec (+19.0 sen) and Dufu (+13.0 sen).

• Among the top lagging shares for the day were Pentamaster (-20.0 sen) despite reporting strong earnings, Carlsberg (-12.0 sen), Sarawak Plantations (-10.0 sen) and Hap Seng (- 8.0 sen). The main key index losers were Maxis (-8.0 sen), Petronas Gas (-28.0 sen) and Tenaga Nasional (-8.0 sen).

• Despite the optimism over an impending trade agreement between the U.S. and China, regional stocks were mostly lower on profit taking activities after the recent hefty gains. China stocks retreated with the Shanghai Composite easing 0.5%, while the Hang Seng shed 0.7% on Friday. Japan’s Nikkei bucked the weakness tread with a 0.3% gain after the country reported above forecast consumer spending in September, ahead of the implementation of higher consumption tax. ASEAN indices, however, were mixed.

• U.S. stocks nudged higher last Friday and continuing to post new highs despite President Trump saying that he has not agreed to reduce tariffs on China made goods in the event of a trade agreement. The Dow managed to inch-up 0.02%, while the S&P 500 rose 0.3%. The Nasdaq also posted marginal gains of 0.04% last Friday.

• In contrast, European equities retreated after President Trump’s remarks on the trade talks spooked sentiments. The FTSE shed 0.6% as a consequence, with the CAC and DAX losing 0.5% and 0.6% respectively to end the week on a losing note.

The Day Ahead

• With stocks continuing to be held up by selected last minute hauls, the underlying tone is still one of indifference as most market players are still uncertain of the near term direction after the key index managed to recover from its four-year low just a month ago. The recent gains have also sent many stocks tethering on the overbought territory.

• Although there is lingering indifference, there could still be mild upsides on the FBM KLCI as banks may still react to the lowering of the SRR last Friday that is set to bolster bank’s lending capabilities, albeit the fresh uncertainties over the status of the U.S-China trade negotiations could cast some cautiousness over the market’s near term direction and prompt some intraday profit taking activities before the end-of-day haul possibly tipping stocks higher. After the 1,610 level, the other resistances are at 1,620 and 1,626 respectively. The supports, on the other hand are at 1,600 and the 1,590 points levels.

• The lower liners and broader market counters also recovered from their intraday losses last Friday and may mirror the performance of the key heavyweights over the near term. We still see gains punctuated by bouts of profit taking as many of the stocks remain overbought.

COMPANY UPDATE

• SLP Resources Bhd’s (SLP) 3Q2019 net profit fell 9.1% Y.o.Y to RM5.7 mln against RM6.2 mln last year, in-tandem with the weaker revenue of RM42.6 mln (- 18.3% Y.o.Y), from RM52.2 mln in the same period last year, mainly due to weaker ASPs and sales volume. Even so, the group has declared a third interim dividend of 1.5 sen per share, payable on 8th January 2020.

• On a cumulative basis, 9M2019 net profit declined marginally to RM17.3 mln (-3.6% Y.o.Y), from RM18.0 mln, due to the aforementioned reasons, while revenue lost 8.4% Y.o.Y to RM128.9 mln, from RM140.7 mln in the last previous period.

• The latest earnings underperformed our estimates, only contributing about 66.6% and 71.1% our previous full-year net profit and revenue forecasts of RM26.0 mln and RM181.4 mln respectively, weighed down by weaker-than-expected selling prices of SLP’s flexible packaging products.

Comment

• Consequently, we trimmed our FY19-FY20 net profit by 3.9%-7.7% to RM24.0 mln-RM26.4 mln, on the basis on lower ASPs and weaker floor utilisation, albeit we tweaked margins slightly higher to account for lower resin prices. Revenue, meanwhile, was adjusted to RM174.1 mln and RM179.6 mln for 2019 and 2020 respectively.

• Moving forward, earnings growth to largely depend on contribution from export sales and stronger sales volumes as new capacity comes online. Meanwhile, ASPs is expected to grow at less than 5.0% next year as we continue to see weak business sentiments as buyers adopt a wait-and-see approach; holding off large purchases amid falling polymer prices.

• We keep our HOLD recommendation on SLP but with a lower target price of RM1.25 (from RM1.30) as we foresee the tough operating environment to persist in FY20, on the back of rising labour costs, slowing global growth and shaky trade relations.

• Our target price is based on an unchanged target PER of 15.0x to our 2020 EPS of 8.3 sen, while the assigned PER is also notably higher than its closest peer, Thong Guan Industries Bhd which we think is justifiable due to SLP’s stronger growth prospects and superior double-digit margins.

COMPANY BRIEF

• IOI Properties Group Bhd's Singaporeanunit has established a S$2.0 bln euro medium-term note (EMTN) programme, whose proceeds will be used for capex, working capital and refinancing of existing borrowings. (The Edge Daily)
   
• Sime Darby Property Bhd, SP Setia Bhd and Alliance Bank Malaysia Bhd will be reomved from the MSCI Global Standard Indexes' MSCI Malaysia Index, from 26th November 2019 onwards following MSCI Inc's latest semi-annual index review. (The Edge Daily)

• Chin Hin Group Bhd is planning to dispose RM76.5 mln worth of real estate assets to major shareholders to raise cash which will be used to pare bank borrowings and fund working capital needs.

• The real estate assets will be sold to companies owned by Chin Hin major shareholders, namely co-founder and Deputy Chairman Datuk Seri Chiau Beng Teik, Managing Director Chiau Haw Choon and Datin Seri Wong Mee Leng. (The Star Online)

• WZ Satu Bhd's former Executive Director, Datuk William Tan Chee Keong and former Alternate Director, Choi Chee Ken are pressing legal charges against the group for the loss of the value of security and bonus shares and warrants amounting to some RM17.0 mln after selling their company to WZ Satu in March 2014. (The Edge Daily)

• Fibon Bhd has inked a Memorandum of Agreement with EZAuto Asia Sdn Bhd to discuss, explore and collaborate on business opportunities in-relation to the provision of financing access and capital solutions for users of the EZAuto Platform which are currently dependent on banks on the financing needs.

• EZAuto Platform is a scalable platform that is capable in fostering economic cooperation in the global automotive industry. (The Edge Daily)

• Zecon Bhd’s auditor Messrs Crowe Horwath had highlighted a material uncertainty in the group’s FY19 financial statements which has cast significant doubt on the group’s ability to continue as a going concern. (The Edge Daily)

• PRG Holdings Bhd has mutually terminated its plans to take-over the entire stake of a loss-making retail company, Premier Management International Ltd (PMIL) from its 54.2%- owned Hong Kong-listed subsidiary Furniweb Holdings Ltd.

• In-conjunction with this termination, Furniweb has signed a subscription agreement with Ignatius International Private Ltd as the subscriber to subscribe for 35.0% stake in PMIL at the subscription price of RM6.5 mln (HK$12.2 mln). (The Edge Daily)

• The Government has agreed to provide a 25-month interim period for procurement of drugs to Pharmaniaga Bhd after its concession ends on 30th November this year, in order to prevent a supply chain disruption in the supply and distribution of medicines to the Health Ministry's facilities nationwide. (The Edge Daily)  

Source: Mplus Research - 11 Nov 2019