• The FBM KLCI (-0.2%) endured a choppy trading session before retreating alongside with the weakness across regional equities yesterday. The lower liners – the FBM Small Cap (-0.1%), FBM Fledgling (-0.2%) and FBM ACE (-0.3%) all slipped, while the broader market remained mostly in the red with energy sector (-0.9%) taking the worst hit.

• Market breadth stayed negative as decliners outpaced advancers on a ratio of 501-to-305 stocks, while 376 stocks traded unchanged. Traded volumes declined 15.3% to 2.13 bln shares amid the negative market sentiment.

• More than half of the key index constituents declined, dragged down Petronas Dagangan (-46.0 sen), KLK (- 20.0 sen), Genting (-12.0 sen), Maxis (- 6.0 sen) and Maybank (-6.0 sen). Among the biggest losers on the broader marker were consumer products giants like Carlsberg (-44.0 sen), Heineken (-30.0 sen) and BAT (-28.0 sen), while Kotra and Genting Plantations fell 18.0 sen and 16.0 sen respectively.

• Notable advancers on the broader market were Allianz (+60.0 sen), Lebtech (+25.0 sen), United Plantations (+22.0 sen), Sungei Bagan Rubber (+20.0 sen). Jaya Tiasa jumped 8.5 sen after delivering a strong set of corporate earnings. Key winners on the FBM KLCI were Hong Leong Bank (+42.0 sen), Tenaga (+16.0 sen), Petronas Gas (+8.0 sen), Dialog (+2.0 sen) and PPB Group (+2.0 sen).

• Asian benchmark indices edged lower amid the escalating political tension in Hong Kong as the Hang Seng Index declined 0.2%, while the Shanghai Composite (-0.5%) extended its’ losses after U.S. President Donald Trump signed a bill backing Hong Kong protesters. The Nikkei fell 0.1%, while ASEAN stockmarkets closed mostly negative on Thursday.

• Major European indices – the FTSE (- 0.2%), CAC (-0.2%) and DAX (-0.3%), all fell, taking cue from the weakness in Asia equities. Market sentiment was dampened by the renewed uncertainty over U.S.-China trade progress. U.S. stockmarkets were closed for the Thanksgiving public holiday.

The Day Ahead

• Malaysian equities are still looking decidedly unsettled after yesterday’s fall that is pushing the key index nearer to the 1,580 support and placing our expectations of a rangebound trend in jeopardy. Although the near term outlook remains clouded, there may still see some mild reprieve today as the key index attempts to end the month on a more positive tone.

• On the whole, however, market conditions are still insipid with market following still largely indifferent as the results reporting season nears its end. Under the prevailing environment, it would appear that the downward drift scenarios are still intact for now that could still see the key index staying subdued for longer.

• Nevertheless, we think that there could still be some year-end window dressing activities next month that could help to provide some support to the key index over the short-to-medium term. In the interim, the key index could nudge higher to the 1,595- ,590 levels to end the month, but we do not think that the 1,600 level will be re-challenged. Below 1,580, the other support is at 1,577.
   
• The lower liners and broader market shares have also been in a consolidation trend after an extended overbought spell. We also see some mild near term upticks ahead of the month–end, but the gains may not prolong as many of the above stocks are still on the pullback mode.

Company Update

• OCK Group Bhd has inked a memorandum of understanding (MoU) today with China Information Technology Designing & Consulting Institute Co Ltd (CITC) — a subsidiary of China United Network Communications Group Co Ltd (China Unicom) to explore a collaboration in telecommunications and technology services.

• The telecommunication services include mobile infrastructure and network services, including 5G and fibre optic infrastructure and bandwidth leasing. The technology services include 5G and beyond applications services, Internet of Things and artificial intelligence.

Comments

• We are positive on the collaboration between the two parties, allowing OCK to leverage on CITC’s expertise on the provision of end-to-end information network solutions for the construction of telecommunication networks. As the collaboration is still in planning stage, we made no changes to our earnings forecast and we maintain our BUY recommendation on OCK with an unchanged target price of RM0.75.

• We adopt a sum-of-parts (SOP) approach as we valued its telecommunication network services and green energy & power solutions business segments on a discounted cash flow approach (key assumptions include a WACC of 9.5%, terminal growth rate of 1.5%) to reflect its ability to generate recurring revenues and steady earnings growth over the longer term. Meanwhile, we ascribed an unchanged target PER of 13.0x to both its fully-diluted trading and mechanical & electrical engineering services businesses, based on their potential earnings contribution in 2020.
  
   

• Kimlun Corporation Bhd’s 3Q2019 net profit decreased 21.7% Y.o.Y to RM12.3 mln, dragged down by the margins compression from both the construction and manufacturing & trading segments that offset the stronger property development segment. Revenue for the quarter, however, climbed 28.1% Y.o.Y to RM336.1 mln.

• For 9M2019, cumulative net profit rose 9.1% Y.o.Y to RM41.7 mln. Revenue for the period grew 39.7% Y.o.Y to RM979.8 mln.

Comments

• The reported earnings came below our expectations, accounting to 66.2% of our previous full year estimated net profit of RM63.0 mln. Meanwhile, the reported revenue came above our expectation, accounting to 94.3% of our full year revenue forecast of RM1.04 bln. The lower-than-expected bottomline was due to lower margins from the execution construction projects.

• With the reported earnings coming below our forecast, we trimmed our earnings estimates by 13.5% and 10.5% to RM54.5 mln and RM65.3 mln for 2019 and 2020 respectively to reflect the margins compression in the construction and manufacturing & trading segments.

• Despite the downward revision of earnings estimates, we maintain our BUY recommendation on Kimlun with a lower target price of RM1.58 (from RM1.65) We reckon that prospective PER valuations of 8.0x and 6.7x for 2019 and 2020 respectively are attractive, being at the lower-end of the construction industry average of 9.0x.

• Our target price is derived from ascribing an unchanged target PER of 9.0x to its 2020 fully diluted construction earnings and PER of 6.0x (unchanged) and to its fully diluted manufacturing earnings, while its property development segment’s valuation remains unchanged at 0.6x its BV due to its relatively small-scale development projects.

• AWC Bhd posted a 9.9% Y.o.Y gain in its 1QFY20 net profit at RM6.7 mln, from RM6.1 mln last year, after consolidating revenue from the newly-acquired subsidiary; Trackwork, despite a mild decline in IFM turnover. Revenue for the quarter, meanwhile, was 29.6% Y.o.Y higher at RM88.8 mln vs. RM68.5 mln in the previous corresponding period.

Comments

• The reported earnings and revenue were in-line with our forecast, accounting for 24.9% and 23.4% of our full-year estimates. Hence, we keep our forecast unchanged at RM26.8 mln and RM379.1 mln for its FY20 net profit and revenue respectively.

• Meanwhile, the rail division posted a strong pretax profit of RM5.3 mln in 1QFY20; cushioning the slowdown in the IFM (-11.0% Y.o.Y), Environment (-66.0% Y.o.Y) and Engineering (-229.0% Y.o.Y) profits due to higher operating costs, project delays and slight margin compressions. We expect orders to remain resilient moving forward, backed by sizable orderbook orders.

• We maintain our BUY call on AWC with an unchanged target price of 80.0 sen by ascribing to an unchanged target PER of 9.0x to AWC’s FY20 EPS of 8.9 sen as the fundamentals of the group remain sound; backed by strong earnings visibility, healthy cash flow generation and minimal capex requirements.

• Our target PER also reflects AWC’s latest three-year mean and remains at a discount to its closest peer, UEM Edgenta Bhd, mainly due to AWC’s smaller market capitalisation.

COMPANY BRIEF

• 7-Eleven Malaysia Holdings Bhd is buying a 25.4% equity stake in Caring Pharmacy Group Bhd, raising the company’s and related parties’ shareholding in the pharmacy chain to 38.6%, resulting in a mandatory general offer (MGO) for the remaining shares, at a cash offer price of RM2.60 per share.

• The convenience store operator intends to maintain the listing status of Caring on the Main Market of Bursa Securities subsequent to the MGO. (The Edge Daily)

• Genting Bhd posted a 3Q2019 net profit of RM305.7 mln, from a net loss of RM275.8 last year, on the back of lower net impairment losses. Revenue, however, dipped 1.6% Y.o.Y to RM5.29 bln compared to RM5.38 bln previously. Cumulative net profit in 9M2019 also doubled to RM1.48 bln, from RM710.4 mln a year ago, while revenue grew 5.6% Y.o.Y to RM16.31 bln, from RM15.46 bln earlier. (The Edge Daily)

• Genting Malaysia Bhd also improved in 3Q2019; with a net profit of RM410.8 mln, from a net loss of RM1.49 bln in the same period last year, while revenue was almost flat at RM2.63 bln (+1.1% Y.o.Y).

• Cumulative 9M2019 net profit grew to RM1.1 bln, from the RM739.7 mln registered in the corresponding period last year, while revenue rose 7.3% Y.o.Y to RM7.96 bln, from RM7.42 bln last year. (The Edge Daily)

• Tenaga Nasional Bhd has received notices of additional assessments from the tax authorities that amounted to RM3.98 bln for the years of assessment 2015 to 2017. Based on the legal advice obtained, TNB said it has good basis to contend that there is no legal and factual basis for the Inland Revenue Board to issue the said notices. (The Edge Daily)

• DRB-Hicom Bhd posted a 2QFY19 net profit of RM40.1 mln, from a net loss of RM11.4 mln previously, boosted from the strong performance of Proton and an exceptional gain on disposal of RM33.6 mln. Revenue, meanwhile, increased 12.9% Y.o.Y to RM3.59 bln, from RM3.18 bln in the last corresponding period.

• For the cumulative 1HFY19, the group registered a net profit of RM86.3 mln, from a net loss of RM78.0 mln in the year-ago period, while revenue jumped 20.4% Y.o.Y to RM7.03 bln, from RM5.84 bln. (The Edge Daily)

• Heineken Malaysia Bhd‘s 3Q2019 net profit spiked 31.0% Y.o.Y to RM103.3 mln compared to RM78.9 mln last year, backed by higher revenue and improved cost efficiency, as well as the timing of commercial spend for new product launches executed during the quarter. Revenue also rose 17.7% Y.o.Y to RM602.5 mln, from RM512.0 mln in the same quarter in 2018.

• Cumulative 9M2019 net profit was up 21.5% Y.o.Y to RM221.8 mln, from RM182.5 mln a year ago, while revenue rose 19.9% Y.o.Y to RM1.64 bln vs RM1.37 bln earlier. (The Star Online)
   
• Supermax Corp Bhd posted a 31.0% Online) drop in its 1QFY20 net profit to RM24.8 mln from RM35.9 mln a year earlier, although revenue rose to RM369.9 mln from RM367.0 mln, as its earnings were impacted by lower average selling prices and an increase in production costs. (The Edge Daily)

• Velesto Energy Bhd posted a 3Q2019 net profit of RM33.3 mln vs. a net loss of RM13.6 mln in the last corresponding period, while quarterly revenue expanded 38.0% Y.o.Y to RM208.5 mln, from RM150.3 mln last year.

• Cumulative 9M2019 net profit also came in at RM22.8 mln compared to a net loss of RM33.5 mln a year ago, while revenue improved 28.3% Y.o.Y to RM492.7 mln, from RM383.9 mln a year ago. (The Star Online)

• Kumpulan Perangsang Selangor Bhd (KPS) recorded a 3Q2019 net profit of RM6.7 mln, from a net loss of RM274.6 mln in the same quarter last year, after recognising a share of loss from its associate, Syarikat Pengeluar Air Selangor Holdings Bhd. Revenue, meanwhile, surged 64.6% Y.o.Y to RM253.0 mln, from RM153.6 mln a year ago.

• The group also posted a cumulative 9M2019 net profit of RM10.8 mln, from a net loss of RM223.1 mln last year, while revenue grew 38.7% Y.o.Y to RM569.6 mln, from RM410.8 mln previously. (The Edge Daily)

• Karex Bhd slipped into the red with a 1QFY20 net loss of RM167,000, from a net profit of RM2.0 mln a year ago, weighed down by high raw material prices as well as ongoing social compliance costs. Revenue, however, was 3.9% Y.o.Y higher at RM95.7 mln, from RM92.2 mln in 1QFY19. (The Star Online)  

Source: Mplus Research - 29 Nov 2019