Lack Of Buying Catalyst In The Near-Term  

• The FBM KLCI was beaten down on Monday, in-tandem with the dour mood in regional markets amid rising Middle East tensions. Similarly, the lower liners – the FBM Small Cap (-0.8%), the FBM Fledgling (-0.9%) and the FBM Ace were also splashed in red, together with the broader market constituents, The only two sectors to outperform were REITs and Energy-related stocks.
   
• Market breadth was bearish as losers more than doubled the winners, while traded volumes fell 5.0% to 3.40 bln shares amid risk-off sentiment.

• More than half of the FBM KLCI members were in the red – led by Nestle (-60.0 sen), Petronas Gas (-28.0 sen), Maxis (-19.0 sen), PPB Group (-18.0 sen) and Tenaga Nasional (-16.0 sen). On their heels were Panasonic Manufacturing (-40.0 sen), Fraser & Neave (-28.0 sen), Allianz (-18.0 sen), Chin Teck Plantations (-16.0 sen) and Heineken Malaysia (-14.0 sen).

• On the winners list, Malaysian Pacific Industries (+26.0 sen), LPI Capital (+18.0 sen), Kejuruteraan Asastera (+13.0 sen), Hengyuan Refining (+10.0 sen) and Harrisons Holdings (+9.0 sen). The only two survivors on the blue-chip gauge were Hong Leong Bank (+16.0 sen) and Hong Leong Financial Group (+16.0 sen).

• Japanese shares mostly retreated, weighed down by soft manufacturing data and a stronger Yen as investors fled to safe-haven assets amid rising geopolitical uncertainties. The Nikkei closed lower after lingering in the negative territory, alongside the Hang Seng Index (-0.8%). The Shanghai Composite, however, closed mostly unchanged, supported by gains in energy shares, while other ASEAN stockmarkets declined.
   
• Wall Street chalked up some gains on Monday after clawing back earlier losses – led by gains in selected tech companies. The Dow eked out 0.2% gains, while on the broader market, the S&P 500 and the Nasdaq ended higher by 0.4% and 0.6% respectively.
   
• Major European bourses also retreated – helmed by the DAX (-0.7%) as rising U.S.- Iran tensions fueled another bout of selling in the markets. The FTSE also fell 0.6% amid the stronger Pound, alongside the CAC (-0.5%).

The Day Ahead

• Expectedly, Bursa Malaysia took a whiplash in tandem with the weakness across global equities as the key index erased all its’ previous session gains. With the 1,615 resistance level remain implausible over the near term coupled with the lack of fresh catalyst, we think that the consolidation spell may stay on the local bourse. As it is, the buying interest on Malaysian shares have remained tepid with few follow-through buying interest to sustain a strong recovery.

• The quick profit taking may see the key index trading in a range bound manner, between the 1,590-1,615 levels. Further solid gains will only come by once the local bourse forms a breakout beyond the upper consolidation band. In the interim, the immediate support is located at 1,590 level. Should the aforementioned level give way, further pullback may draw the key index towards the 1,575 level.

• The lower liners and broader market shares were also not spared from the renewed volatility and we see the weakness will continue to linger over the near term. For now, investors may also adopt a wait-and-see approach, but we continue to see the energy sector outperforming as Brent oil prices hit the US$70 per barrel level.

Company Update

• OCK Group Bhd's Cambodian unit's suit against Nokia Shanghai Bell Co., Ltd and branch of Alcatel-Lucent Shanghai Bell Co., Ltd over the breach of the subcontract agreement signed in April 2014 has been concluded. To recap, OCK had on 19th November 2018 filed an application for arbitration to the CIETAC in Shanghai, China against Nokia Shanghai Bell.

• In April 2014, OCK Phnom Penh had inked a deal with the respondents to provide materials or services in relation to Greater Mekong Telecommunication Backbone Network Project in Cambodia. The total agreement price was about US$6.3 mln which the respondents would have to pay to OCK Phnom Penh. However, the parties adjusted the quantities of the works and the final agreement price was adjusted to US$3.7 mln.

• US$1.8 mln was the variable quantities for the actual works done has been incurred by OCK Phnom Penh which was according to the respondents’ on-site instructions and other related written instructions. Hence, the total sum due should have been US$5.5 mln. As of 19th November 2018, the respondents had only paid US$2.6 mln and failed to pay the outstanding progressive payment of US$1.1 mln and the variance amount of US$1.8 mln to OCK Phnom Penh. (The Star Online)

Comments

• We are slightly positive on the abovementioned news that would beef up OCK’s books, albeit in a small quantum. We leave our earnings forecast unchanged in view that proceeds from the arbitration will see marginal effect to the group’s bottomline.
• Hence, we maintained 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.

COMPANY BRIEF

• Bursa Malaysia Securities Bhd has publicly reprimanded Sunzen Biotech Bhd and two of its executive directors for breaching ACE Market Listing Requirements. Sunzen's managing director cum CEO Datuk Hong Choon Hau and former executive director and chief operating officer Lim Eng Chai, whom resigned on 30th November 2018 were each publicly reprimanded and fined RM50,000.

• Both Hong and Lim failed to obtain prior shareholders’ approval for diversifying into a new business which was trading of crude palm oil (CPO) and its derivative products such as palm kernel and palm kernel shell in February 2017. Sunzen only announced the proposed ratification of the diversification on 9th February 2018 and obtained its shareholders’ ratification for the corporate exercise on 30th May 2018. (The Star Online)

• LBS Bina Group Bhd has set its 2020 new property sales target at RM1.60 bln, similar to the sales target of RM1.63 bln it achieved in 2019, as the group is expecting the lower interest rate environment to continue to support its property sales. The group is confident about the new property sales target in 2020, citing the market is anticipating another rate cut for the overnight policy rate (OPR) in 2020, which he added bodes well for LBS Bina's housing sales. (The Edge Daily)

• KKB Engineering Bhd has bagged a job from Petronas Carigali Sdn Bhd to provide engineering, procurement, construction, commissioning and installation of Wellhead Platform for BKD-A and Host Tie-In Modification at BNCPP-B Topsides — Bakau NonAssociated Gas Development Project. The project execution period is for 19 months. (The Edge Daily)

• Wang-Zheng Bhd's Managing director (MD) and Chief Executive Officer (CEO) Goh Kheng Jiu has ceased to be a substantial shareholder, after disposing of 2.0 mln shares. Goh had sold off the shares via off-market transaction. Post transaction, Goh effectively has 2.0 mln shares or 1.3% direct stake in the fibre-based manufacturing company. Indirectly, he holds a 3.6% stake. (The Edge Daily)

• Malaysia Airports Holdings Bhd (MAHB) group CEO Raja Azmi Raja Nazuddin has stepped down, handing the reins over to its Chief Operating Officer (COO) Datuk Mohd Shukrie Mohd Salleh. While MAHB looks to identify and appoint a suitable successor, the board has appointed Mohd Shukrie as the acting group CEO with immediate effect. (The Edge Daily)

• GHL Systems Bhd, in partnership with Mastercard, has launched a tokenized e-payments solution that offers simpler, more secure and seamless digital payment experiences for consumers. The Mastercard Digital Enablement Service (MDES) for Merchants (M4M) is offered by GHL’s fintech arm, eGHL, for online and in-app transactions. eGHL will be the first payment service provider in Southeast Asia to enable MDES For Merchants in Malaysia, starting January 2020. (The Edge Daily)

• Vortex Consolidated Bhd confirmed that it is in talks to acquire a stockbroking firm, but said it has yet to enter into any definitive agreement. The company confirmed this, after it was reported that Vortex's new major shareholder, Eugene Goh, had not denied speculation that the company was in talks to buy one of the last standalone stockbroking firms. Among the remaining ones are PM Securities Sdn Bhd and SJ Securities Sdn Bhd. (The Edge Daily)

• MMC Corp Bhd seeks to team up with Felda Holdings Bhd to explore the potential equity participation of up to 25.0% stake in Fauji Akbar Portia Marine Terminals Ltd (FAP), an entity which had been granted a concession by the Port Qasim Authority to operate a dry bulk terminal in Port Qasim, Pakistan.

• MMC’s wholly-owned subsidiary Johor Port Bhd had on 3rd January 2020, entered into a Memorandum of Understanding (MoU) with Felda Holdings' 65.0%-owned Pakistan-based unit FWQ Enterprises (Pte) Ltd, for the purpose. The balance of 35.0% equity interest in FWQ is held by Westbury Group, a company based in Pakistan. The MoU remains valid for two years. (The Edge Daily)  

Source: Mplus Research - 7 Jan 2020