Banking On Follow -Through Buying

• The FBM KLCI rebounded after recovering all its’ intraday losses as the key index rose 0.3% last Friday. Consequently, the rebound lifted the key index to close higher on a weekly note, rising 0.2% W.o.W. The lower liners, however, trended mostly lower as the FBM Small Cap and FBM Fledgling shed 0.3% and 0.1% respectively, while the broader market closed mixed.

• Market breadth stayed negative as decliners overpowered advancers on a ratio of 423-to-398 stocks, while 412 stocks traded unchanged. Traded volumes fell 12.6% to 2.56 bln shares amid the negative market sentiment.

• Steering the FBM KLCI higher were Petronas-related companies like Petronas Dagangan (+52.0 sen), Petronas Gas (+26.0 sen) and Petronas Chemicals (+10.0 sen), while Tenaga and KLK gained 10.0 sen each. IGB jumped 39.0 sen on plans to establish a real estate investment trust, while other significant advancers on the broader market were plantation companies like Sarawak Oil Palms (+24.0 sen), Chin Teck Plantations (+19.0 sen), Hap Seng Plantations (+14.0 sen) and Kwantas (+12.0 sen).

• In contrast, Carlsberg (-20.0 sen), Genting Plantations (-18.0 sen), Panasonic (-18.0 sen), Allianz (-12.0 sen) and Dutch Lady (-8.0 sen) fell on the broader market. Key decliners on the FBM KLCI were Nestle (-80.0 sen), Hong Leong Bank (-10.0 sen), Hong Leong Financial Group (-6.0 sen), MISC (-2.0 sen) and Press Metal (-2.0 sen).

• Aseian benchmark indices closed mostly higher as the Nikkei gained 0.3% after the Japanese Yen weakened against the Greenback. The Hang Seng Index added 0.5%, but the Shanghai Composite (-0.6%) slipped below the 2,900 psychological level. ASEAN stockmarkets, meanwhile, finished mixed on last Friday.

• U.S. stockmarkets rebounded as the Dow gained 0.4% on U.S. President Donald Trump remarks on a closer trade deal with China. On the broader market, the S&P 500 added 0.2%, anchored by the financials sector (+0.8%), while the Nasdaq also climbed 0.2%.

• Major European indices – the FTSE (+1.1%), CAC (+0.2%) and DAX (+0.2%) all rebounded amid optimism over the U.S.- China trade progress. The rally in U.K. equities was driven by the weaker British Pound against the Greenback amid the expectations over a weak purchasing managers index data.

THE DAY AHEAD

• Although Malaysian stocks managed to turn its fortune around last Friday amid renewed hopes that a trade deal between the U.S. and China, the outlook is still on of indifference. Nevertheless, the gains helped to arrest some of the mild weakness that permeated the market earlier.

• With no adverse news on the trade deal over the weekend, there are still hopes that a trade deal can be reached and the event will continue to dictate the market’s near term direction, as with the ongoing results reporting season that is reaching its peak period. We see the key index continuing to gain ground as institutions take the opportunity to undertake selected trading on some of the index linked stocks.

• This could allow the key index to re-challenge the 1,600 points level and if it is breached, the resistances shift to the 1,605 and 1,610 levels. The supports, on the other hand, are at 1,590 and 1,580 respectively.
   
• Elsewhere, the lower liners and broader market shares are still broadly on their consolidation trend and this trend looks to continue over the near term as compelling leads are still far and inbetween. Consequently, market following on the above shares is also on the thin side, further leaving the stocks to drift over the near term, in our view.

COMPANY UPDATE

• HIL Industries Bhd’s (HIL) 3Q2019 net profit grew by more than seven-fold to RM8.7 mln, from RM1.1 mln in the previous corresponding year, on the back of stronger revenue growth, which doubled to RM43.1 mln, from RM20.6 mln earlier, and improved bottomline margins.

• Subsequently, cumulative 9M2019 net profit rose 44.4% Y.o.Y to RM14.8 mln, from RM10.3 mln previously, following increased revenue at RM114.6 mln (+64.4% Y.o.Y), from RM69.7 mln last year, as well as stronger gross profit margins. We note that core net profit would have doubled, if we take into account the one-off gain from the acquisition of a subsidiary in 9M2018.

Comments

• HIL’s performance exceeded our expectations, making up about 82.1% and 89.4% of our previous estimated net profit and revenue respectively, owing to stronger-than-expected topline growth. Moving forward, we increased our 2019 net profit and revenue forecast by 15.4% and 28.6% to RM20.9 mln and RM164.8 mln respectively, on the back of higher sales volume and stronger margins growth. Our 2020 earnings and turnover were also adjusted higher by 25.1% and 24.0% to RM25.8 mln and RM177.0 mln respectively.
   
• Even though HIL has outperformed our earlier forecast, we maintain our HOLD recommendation on HIL Industries Bhd, but with a higher target price of RM0.75 (from RM0.70) as we adopt a cautious approach to this stock owing to several unresolved headwinds in the domestic property landscape, i.e.: increasing unsold properties, strict lending requirements by financial institutions and rising costs.
   
• Our target price is based on sum-of-parts (SOP) approach with an unchanged target PER of 9.0x to its 2019 manufacturing business and a discount of 50% (unchanged) to the revalued net asset value (RNAV) estimate of HIL’s property unit.

COMPANY BRIEF

• AirAsia Group Bhd's cargo and logistics subsidiary, Teleport has inked a direct interline agreement with Lufthansa Cargo AG under which Teleport customers will gain access to Lufthansa Cargo space on Lufthansa flights. The long-term partnership could open up more than 300 destinations in 100 countries for Teleport customers while Lufthansa Cargo customers will have access to AirAsia's network of over 150 destinations in Asia Pacific. (The Edge Daily)

• Key ASIC Bhd will focus on selling the licensing of its design Intellectual Properties to drive revenue growth, with China and Russia as their key market. (The Edge Daily)

• UCrest Bhd expects earnings growth in 2020 to be mainly driven by the pharmaceutical and insurance sectors. (The Edge Daily)

• Bursa Malaysia Bhd‘s four top executives has resigned following a revamp of its organisational and leadership structure. The four top executives who will leave upon the expiry of their current fixed term contracts are Chief Commercial Officer Selvarany Rasiah, Chief Operating Officer Datin Azalina Adham, and Director of corporate strategy Dr Tan Wei Lin as well as Chief Regulatory Officer Yew Yee Tee. (The Edge Daily)

• Pasdec Holdings Bhd has aborted a vehicles electrical wiring harness contract worth RM380.0 mln due to "failure to meet targets relating to part price, tooling price, quality, delivery conditions and production capacities" as agreed between the two sides. The contract was awarded to its unit in Botswana by Nissan South Africa (Pty) Ltd.

• UEM Sunrise Bhd is selling one of its properties in Melbourne for A$125.0 mln (RM354.6 mln). The property includes a serviced apartment block that forms part of the Aurora Melbourne Central, together with 10 car park lots and part of the ground floor retail area measuring a gross floor area of 14,900 sq.m. (The Edge Daily)

• Matrix Concepts Holdings Bhd is planning to buy 86 parcels of land in Negeri Sembilan measuring some 68.2 ha. for RM73.5 mln to beef up its existing land bank. (The Edge Daily)

• Latitude Tree Holdings Bhd is acquiring a piece of freehold land measuring 435,604 sq. ft. in Klang for RM29.4 mln. (The Edge Daily)

• CIMB Group Holdings Bhd’s 3Q2019 net profit narrowed 14.4% Y.o.Y to RM1.01 bln, from RM1.18 bln a year ago due to higher operating expenses and provisions, despite revenue growing 12.0% Y.o.Y to RM4.64 bln, from RM4.14 bln last year.

• Cumulative 9M2019 net profit also fell 16.9% Y.o.Y to RM3.71 bln, from RM4.47 bln in the same period last year, while revenue inched lower by 0.3% Y.o.Y to RM13.27 bln, from RM13.31 bln earlier. (The Star Online)

• Petronas Dagangan Bhd’s (PetDag) 3Q2019 net profit lost 11.6% Y.o.Y to RM239.0 mln, from RM270.3 mln last year, following higher product cost, depreciation and amortisation expenses, albeit cushioned by higher other income. Revenue for the quarter was nearly flat at RM7.81 bln, from RM7.82 bln earlier.

• Cumulative 9M2019 net profit trimmed 12.5% Y.o.Y to RM703.0 mln compared to RM803.2 mln in the previous corresponding year, while revenue edged higher by 1.5% Y.o.Y to RM22.50 bln, from RM22.17 bln previously. The group declared an interim dividend of 16 sen per share for the quarter, payable on Dec 20. (The Edge Daily)

• UEM Edgenta Bhd’s 3Q2019 net profit came in barely changed at RM17.3 mln (- 1.6% Y.o.Y), from RM17.6 mln last year despite higher revenue, weighed down by weaker contribution from its infrastructure-related businesses. Revenue, however, grew 11.2% Y.o.Y to RM587.6 mln, from RM528.3 mln earlier.

• Cumulative 9M2019 net profit rose 4.7% Y.o.Y to RM84.3 mln against RM80.5 mln in the same period last year, while revenue rose 10.7% Y.o.Y to RM1.7 bln, from RM1.54 bln in the previous year. (The Star Online)

• Dayang Enterprise Holdings Bhd‘s 3Q2019 net profit spiked nearly 120.0% Y.o.Y to RM107.1 mln, from RM48.8 mln last year, mainly due to wider profit margins on work orders. Revenue also grew 26.8% Y.o.Y to RM357.6 mln, from RM281.9 mln in 3Q2018.

• Similarly, cumulative 9M2019 net profit jumped almost 138.0% Y.o.Y to RM158.1 mln vs. RM66.5 mln earlier. Cumulative revenue also gained 16.7% Y.o.Y to RM761.2 mln compared to RM652.0 mln a year ago. (The Edge Daily)

Source: Mplus Research - 25 Nov 2019