Feeling The Strain

• Tracking the negative sentiment in the regional markets amid rising political tensions, the FBM KLCI also inched lower on Monday, weighed down by selected heavyweights like IHH Healthcare and CIMB. The majority of the lower liners – the FBM Small Cap (- 0.7%) and FBM Ace (-1.9%) also retreated, with the exception of the FBM Fledgling (+0.3%), while the broader market closed mostly in the negative territory.

• Market breadth also turned negative as decliners almost doubled the gaining stocks, while traded volumes fell 23.6% to 2.37 bln amid the risk-off sentiment.

• Significant Main Board decliners were Nestle (-80.0 sen), Kuala Lumpur (-32.0 sen), Hong Leong Financial Group (-18.0 sen), Malaysia Airports (-14.0 sen) and PPB Group (-14.0 sen). Other losers were United Plantations (-38.0 sen), Chin Teck Plantations (-20.0 sen), Far East Holdings (-16.0 sen), Pentamaster (-11.0 sen) and Batu Kawan (-10.0 sen).

• On the winners’ list, shares like Fraser & Neave (+36.0 sen), Heineken Malaysia (+20.0 sen), Petra Energy (+19.0 sen), QL Resources (+18.0 sen) and Pharmaniaga (+17.0 sen) closed positively. Meanwhile, leading the bluechip gauge gainers were Petronaslinked shares like Petronas Dagangan (+24.0 sen) and Petronas Gas (+8.0 sen), followed by Hong Leong Bank (+14.0 sen), IOI Corporation (+6.0 sen) and Public Bank (+6.0 sen) - the latter despite posting slightly weaker earnings last week.

• Hong Kong stocks were badly beaten down, following increased violence and public unrest; stoking fears of a potential recession. The Hang Seng plunged 2.6%, with all of its sectors in the red, while the Shanghai Composite and the Nikkei retreated 1.8% and 0.3% respectively. ASEAN stockmarkets also followed suit, closing mostly lower at Monday’s close.

• Wall Street finished with meagre losses as tech-linked indices like the S&P 500 (- 0.2%) and the Nasdaq (-0.1%) ended in the red amid ongoing uncertainties in the U.S.-China trade relations. The Dow, however, eked out gains, boosted by Boeing after it announced that it will resume the deliveries of 737 Max planes in December.

• Earlier, key European markets were splashed in red, weighed down by the deadlock in Spain’s political landscape, weak Chinese data and rising public tensions in Hong Kong. The FTSE fell 0.4%, hit by a stronger Pound, alongside the DAX (-0.2%), although the CAC (+0.1%) outperformed its peers and closed higher.

The Day Ahead

• Once again, there was support yesterday to keep the day’s losses at a minimum despite the increasingly wary market conditions that is seeing market breadth turning increasingly weaker. Still, market conditions remain overbought and we continue to think that a pullback is already due to adjust from its toppish streak.

• Technical indicators suggest further weakening of the key index, but we think that the key index is likely to remain supported and stay above the 1,600 psychological level for a possible year end window dressing action that could lift the key index to around the 1,650 level. In the interim, we think that there will be continuing intraday corrections before end-of-day supports materialises to aid the key index’s stay above the 1,600 psychological level. The immediate resistance is at the 1,610 level, followed by the 1,620 level. Below the 1,600 support, the other support remains at the 1,590 level.

• The lower liners and broader market shares are also undergoing a largely sideway correction and remains overbought. Already, the FBM Small Cap index is undergoing a more pronounced pullback that could escalate as there are few fresh leads and market players could opt to lock-in profits first. Therefore, we think that the near term weakness/indifference among the lower liners and broader market shares are set to continue over the near term.

COMPANY BRIEF

• Nextgreen Global Bhd is pushing ahead with its production of pulp from oil palm biomass with the signing of a Memorandum of Agreement (MoA) with Universiti Putra Malaysia (UPM). Its unit, Nextgreen Pulp & Paper Sdn Bhd (NGPP) had inked the MoA with UPM to allow for a technology licensing to NGPP from UPM.

• The technology involved the production of nanocellulose from oil palm biomass which was developed by a group of UPM researchers. The licensing agreement with the duration of 30 months started in August 2019 involving a licensing fee of RM550,000 to be paid by NGPP to UPM.

• The pulp will be used in the R&D project on sustainable food packaging in collaboration with UPM to offer a viable replacement to polystyrene food packaging following a global shift in consumer preference towards sustainable packaging solutions. (The Star Online)
   
• Air Asia Bhd (AAB) has signed a profit sharing agreement with its sister company, AirAsia X Bhd (AAX) in connection with the transfer of two of its existing slots of its Kuala LumpurSingapore route. Pursuant to the agreement, AAX will share 50.0% of the net operating profit of the route with AAB on a monthly basis throughout the term of the agreement. The agreement shall be effective on the date of the agreement, for a period of one year and may be renewed for another one year by mutual agreement in writing by both AAX and AAB. (The Star Online)

• Cycle & Carriage Bintang Bhd’s (CCB) controlling shareholder, Jardine Cycle & Carriage Ltd (Jardine CCL) has proposed to undertake a selective capital reduction and repayment (SCR) at RM2.20 per share. The proposed SCR will pave the way for the privatisation of the auto player, the share price of which has been downhill in the past few years to a 10- year low.

• Upon the completion of the proposed selective capital repayment, Jardine CCL will own 100.0% equity interest in CCB and Jardine CCL does not intend to maintain the listing status of CCB on the Main Market of Bursa Malaysia. (The Edge Daily)

• CIMB Group Holdings Bhd and PLUS Malaysia Bhd announced that their joint venture company, Touch n' Go Sdn Bhd (TNG), will be launching the RFID tag as an additional payment option for road users at all PLUS expressways across the country next year.

• TNG RFID services will be available on 10 open system toll plazas situated along PLUS’ expressways by 1st January 2020. The service will be rolled out on all 83 closed system toll plazas on PLUS highways by 1st April 2020. (The Edge Daily)
   
• The boardroom tussle at tile manufacturer Seacera Group Bhd has intensified with two shareholders — AEV Engineering & Trading Sdn Bhd and Fantastic Fortress Sdn Bhd, who claimed to hold at least 2.5% of the company’s paid-up capital, are seeking to block the appointment of six new directors at an EGM scheduled on 3rd December 2019. Seacera said it will seek legal advice on the matter and announce any material development accordingly. (The Edge Daily)

• Pestech International Bhd has bagged a RM38.4 mln contract from Tenaga Nasional Bhd (TNB) for the supply and delivery of smart meters around the Klang Valley. Its unit, Pestech Sdn Bhd has received the letter of award on 8th November 2019 which is to last two years. (The Edge Daily)

• KLCCP Stapled Group, comprising KLCC Property Holdings Bhd and KLCC Real Estate Investment Trust (KLCC REIT) said tis 3Q2019 net profit was flat at RM181.4 mln. Revenue for the quarter climbed 1.2% Y.o.Y to RM353.5 mln.

• For 9M2019, cumulative net profit rose 0.8% Y.o.Y to RM545.7 mln. Revenue for the period grew 1.8% Y.o.Y to RM1.04 bln. The group proposed a distribution per stapled security of 8.8 sen for the quarter, payable on 18th December 2019. (The Edge Daily)

• Dialog Group Bhd’s 1QFY20 net profit jumped 43.6% Y.o.Y to RM164.6 mln on higher share of profit from joint ventures and associates. Revenue for the quarter, however, contracted 6.5% Y.o.Y to RM645.8 mln. (The Edge Daily)

• Malaysia Smelting Corp Bhd's (MSC) 3Q2019 net profit surged 162.0% Y.o.Y to RM30.6 mln, helped by a one-off provision write-back of RM48.4 mln for tribute payments that is no longer required. Revenue for the quarter, however, fell 34.0% Y.o.Y to RM204.3 mln.

• For 9M2019, cumulative net profit jumped 149.4% Y.o.Y to RM46.6 mln. Revenue for the period, however, declined 19.4% Y.o.Y to RM800.8 mln. (The Edge Daily)  

Source: Mplus Research - 12 Nov 2019