Recovery To Sustain

• The FBM KLCI (+0.9%) recovered all its’ intraday losses, finishing higher on the eleventh hour buying support in selected index heavyweights on last Friday. Consequently, the key index advanced for the third straight week, rising 2.5% W.o.W. The lower liners – the FBM Small Cap (+0.2%), FBM Fledgling (+0.2%) and FBM ACE (+0.7%), all trended higher, while the broader market finished mostly higher.

• Market breadth turned positive as advancers outnumbered decliners on a ratio of 413-to-387 stocks. Traded volumes grew 2.8% to 2.17 bln shares as traders returned to bargain hunt.

• Anchoring the gainers on the FBM KLCI list were Nestle (+RM2.20), PBB Group (+RM1.06), Petronas Gas (+84.0 sen), Petronas Chemicals (+26.0 sen) and Tenaga (+26.0 sen). Consumer products giants like Dutch Lady (+76.0 sen), Fraser & Neave (+38.0 sen), QL Resources (+31.0 sen) and Carlsberg (+26.0 sen) advanced on the broader market, while Gamuda added 6.0 sen after the takeover of four highway concessionaires will be extended till end-February 2020.

• Significant losers on the broader market include Heineken (-30.0 sen), Batu Kawan (-22.0 sen), TimedotCom (-18.0 sen) and United Plantations (-16.0 sen). Aeon Credit fell 2.0 sen after reporting weak set of quarterly earnings. Meanwhile, Hong Leong Bank (-40.0 sen), KLK (-16.0 sen), Maybank (-8.0 sen), CIMB (-6.0 sen) and Hong Leong Financial Group (-6.0 sen) were the key index’s biggest losers.

• Asia benchmark indices ended mostly lower as the Nikkei (-0.2%) trended lower for the third straight session amid the lack of fresh leads. The Shanghai Composite fell 0.4% after the People Bank of China kept benchmark interest rates unchanged, but the Hang Seng Index (+0.3%) rebounded. ASEAN stockmarkets, meanwhile, ended the week on a mixed note.

• Wall Street took another step forward as the Dow (+0.3%) closed at another fresh record high level as investors welcomed the reports that the final reading of 3Q2019 GDP data was unchanged at +2.1% Y.o.Y, boosted by the strong consumer spending. Similarly, the S&P 500 gained 0.5%, while the Nasdaq closed 0.4% higher.

• Earlier, European benchmark indices - FTSE (+0.1%), CAC (+0.8%) and DAX (+0.8%), all march higher, taking cue from the positive sentiment on Wall Street. Gains on the former were also underpinned by the prospects of Bank of England to trim interest rates in 1H2020 to combat the potential slowdown of the economy post-Brexit.

THE DAY AHEAD

• The year-end window dressing activities shored the FBM KLCI higher as the key index finished at its’ highest level since August 2019. We think that the buying momentum from the window dressing will sustain till the end of the month as the key index is geared to finish the month on the positive note.

• We continue to see the year-end window dressing activities as the key index play catch-up with the strong gains across its’ regional peers over the year. However, we do caution that the key index may take a step back amid the overbought condition. For now, we see the key index likely to stage further recovery, potentially targeting the 1,621 level. On the downside, a pullback will see the FBM KLCI to be supported at the 1,585 level.

• Expectedly, the lower liners advanced on bargain hunting. The strong performance may sustain as traders continue to build on to their position, capitalising on the recent positive performances. Despite that, we think the gains may be limited as we move into the holiday-shortened midweek break.

COMPANY UPDATE

• OCK Group Bhd is acquiring a 100.0% equity interest in renewable energy power generation company Green Leadership Sdn Bhd for a cash consideration RM31.7 mln. Upon completion of the acquisition, Green Leadership will become an indirect subsidiary of OCK. OCK will purchase the stake in cash and finance the acquisition through equity funding.

• Green Leadership is currently in the business of electrical, mechanical, motor and generation of power including all forms of renewable energy power generation. (The Edge Daily)

Comment

• We are positive on the acquisition that is expected to be earnings accretive to OCK over the long run. This also enables OCK to leverage on Green Leadership’s expertise in the renewable energy power generation segment.

• Following the acquisition, we raised OCK’s earnings by 2.1% and 1.9% to RM33.7 mln and RM36.5 mln for 2020 and 2021 respectively. We maintained our BUY recommendation on OCK with a higher target price of RM0.76 (from RM0.75) to account for the contribution from Green Leadership.

• 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.

COMPANY BRIEF

• Frozen food manufacturer MRI VC Bhd is planning to buy a substantial stake in Brahim’s Holdings Bhd after signing a Heads of Agreement (HoA) with the former. The HOA includes details concerning MRI’s participation in the Brahim’s proposed regularisation plan via private placement or rights issue. MRI is also paying an RM2.0 mln deposit for the stake in Brahim’s. In return, Brahim’s will award monthly contracts with an aggregate value of up to RM500,000 each, over two years to MRI VC.

• No details were provided over the size of the stake and how much Brahim’s plans to raise from the exercises. Brahim’s is also planning a regularisation plan to Bursa Malaysia by 27th February, 2020, in a bid to leave its PN17 status. (The Star Online)

• Pestech International Bhd has secured an engineering, procurement and construction contract from PNG Power Ltd (PPL) worth US$17.0 mln (RM70.5 mln) for the latter’s Port Moresby Power Grid Development Project in Papua New Guinea. This is the third contract awarded by PPL to Pestech, with the first two being in 2008 and 2016. (The Edge Daily)

• The Energy Commission (EC) has approved new gas tariffs for three of Petronas Gas Bhd’s facilities for two years beginning 1st January, 2020. The tariff has been set at RM1.129 per gigajoule (/GJ) for its Peninsular Gas Utilisation facility or PGU, at RM3.455/GJ for its Regasification Terminal Sg Udang in Melaka, and at RM3.485/GJ for its Regasification Terminal Pengerang in Johor.

• PGU's current tariff is RM1.072/GJ, Melaka’s Regasification Terminal Sg Udang stands at RM3.518/GJ. The rate at the Regasification Terminal Pengerang, Johor, meanwhile was reported to be US$0.637 per mln British thermal unit (mmBtu). (The Edge Daily)

Source: Mplus Research - 23 Dec 2019