On Recovery Path

• The FBM KLCI (+0.6%) recovered most of its’ previous session losses, taking cue from the gains on Wall Street overnight that led to mild bargain hunting activities across the board. The lower liners - the FBM Small Cap (+0.6%), FBM Fledgling (+0.6%) and FBM Ace (+0.5%), all advanced, while the broader market finished mostly higher, led by the technology sector (+2.1%).

• Market breadth turned positive as advancers overpowered the decliners on a ratio of 462-to-372 stocks. Traded volumes rose 14.6% to 2.77 bln shares as investors returned to bargain hunt beaten down stocks.

• Petronas Chemicals (+27.0 sen) led the local bourse winners list, followed by Hap Seng Consolidated (+16.0 sen), Tenaga (+14.0 sen), KLK (+12.0 sen), and Petronas Gas (+12.0 sen). Notable gainers on the broader market were Carlsberg (+78.0 sen), Heineken (+44.0 sen), KESM Industries (+28.0 sen) and SAM Engineering & Equipment (+28.0 sen). Kumpulan Powernet jumped 25.0 sen after bagging a RM66.0 mln power plant contract in Laos.

• On the flipside, broader market decliners were Batu Kawan (-28.0 sen), MPI (-18.0 sen), Genting Plantations (-14.0 sen), Fraser & Neave (-12.0 sen) and Rapid Synergy (-11.0 sen). Meanwhile, IHH (- 7.0 sen), MISC (-5.0 sen), Malaysia Airport Holdings (-3.0 sen), Hong Leong Bank (-2.0 sen) and Press Metal (-2.0 sen) declined on the FBM KLCI.

• Asia benchmark indices closed higher as investors continue to assess the impact of coronavirus on global economy as the Hang Seng Index jumped 1.3%, while the Shanghai Composite (+0.4%) advanced for the sixth straight session to close above the 2,900 psychological level. Japanese equities were closed for the National Foundation Day public holiday. ASEAN stockmarkets, meanwhile, closed mostly higher on Tuesday.

• U.S. stockmarkets closed mostly higher as investors turned their attention to a barrage of stronger-than-expected corporate earnings, leading to the S&P 500 and Nasdaq finishing 0.2% and 0.1% higher respectively. The Dow, however, closed on a flattish note after erasing all its’ intraday gains.

• Major European indices - the FTSE (+0.7%), CAC (+0.7%) and DAX (+1.0%), all recovered all their previous session losses on easing concerns over the economic impact of China's coronavirus outbreak. Investors are also bracing for further stimulus measures from China to cushion the impact of coronavirus outbreak.

The Day Ahead

• The Malaysian stockmarket were traded in tandem the rebounding regional market trend to make decent gains yesterday. The recovery was also partly the result of the abating concern over the coronavirus outbreak that provided room for the key index to make the long awaited rebound as it allowed the bargain hunting activities to take precedent.

• However, the gains could just be a reprieve before the uncertainties creep in again amid the barrage of corporate earnings results release. For now, the recovery may be in place for the FBM KLCI to trend towards the 1,570 resistance level. On the downside, there is support at the 1,535 level, followed by the 1,515 level.

• The lower liners and broader market shares are making some headway amid the positive sentiment. The previous session’s heavy selling on the stocks seems to have abated and this could allow some measure of support for further upside over the near term.

Company Update

• Hartalega Holdings Bhd’s 3QFY20 net profit was almost unchanged at RM121.3 mln (+1.3% Y.o.Y), from RM119.8 mln a year ago, despite the 10.1% Y.o.Y growth in revenue to RM796.6 mln. The lackluster profitability was mainly attributed to lower ASPs. Even so, the group declared a second interim dividend of 1.8 sen per share, payable on 27th March, 2020.

• In contrast, cumulative 9MFY20 net profit fell 12.5% Y.o.Y to RM319.2 mln, compared to RM364.8 mln in the same period last year, weighed down by lower ASPs, higher depreciation expenses and increased cost of sales. Revenue, meanwhile, was flat at RM2.15 bln vs RM2.14 bln previously. (The Star Online)

Comments

• The latest earnings and revenue were broadly in-line with our expectations at 70.6% and 72.1% of our previous full-year forecast net profit and turnover of RM452.0 mln and RM2.98 bln respectively.

• Even so, we tweaked our FY21 earnings forecast higher to RM537.4 mln (+5.4%), in-view of stronger sales volumes and better margins. Revenue forecast, meanwhile, was maintained at current levels.

• We also expect to see a slight bump up in the final quarter as manufacturers ramp up capacity to meet the spike in global demand for medical gloves amid the coronavirus outbreak.

• We upgrade our recommendation on Hartalega to BUY (from Hold) with a higher target price of RM6.85 (from RM5.75) by ascribing to a higher target PER of 43.0x to Hartalega’s FY21 EPS of 15.9 sen as we look forward to strengthening demand, higher capacity and improving cost efficiencies. The higher target PER is in-line with the increase in peers’ valuation, on the back of improved profitability prospects.

• Our target PER remains at a premium to Hartalega’s competitors premised on: (i) Hartalega’s solid position as the global market leader in the nitrile glove segment, (ii) superior operational efficiency in terms of production speed and the lower number of workers per glove output, (iii) consistent and high quality control standards, and (iv) solid fundamentals where it commands the highest net profit margin vs. its peers.

COMPANY BRIEF

• Perak Corp Bhd has triggered the Practice Note 17 (PN17) requirements following a default on a loan repayment and its inability to declare solvency. (The Edge Daily)

• SPA Furniture (M) Sdn Bhd, a dormant company held by Datuk Seri Lim Teck Boon and his father Lim Chaw Teng has emerged as the largest shareholder in Euro Holdings Bhd, with a 51.0% equity stake, triggering a mandatory general offer (MGO) for the shares they do not own at 20.0 sen apiece.

• SPA acquired the stake comprising 136.3 mln shares for RM27.3 mln on 11th February, 2020 from eight Euro shareholders, including Managing Director (MD) Datuk Seri Choong Yuet Keong @ Tong Yuen Keong, who disposed his entire 11.5% stake company. The Lims intend to maintain the listing status of Euro Holdings on the Main Market of Bursa Securities. (The Star Online)

• Eka Noodles Bhd's subsidiaries have been sued for allegedly forging and altering documents to confuse the public on the ownership of a noodles brand, Nayati.

• The Practice Note 17 firm was slapped with an amended writ of summons and statement of claim on 3rd February, 2020 in relation to the claims filed by Great Food Industries Sdn Bhd.

• Four others were also named as defendants — Mazlan Mohamad Isa (trading as Perniagaan Idaman Murni), Great Line Success Sdn Bhd, Ang Eng Hooi, and Chew Hong Food Industries Sdn Bhd. (The Edge Daily)

• Trading in shares of retail stockbroking firm TA Enterprise Bhd and its subsidiary TA Global Bhd will be suspended on 12th Februart, 2020 ahead of a material announcement. TA Enterprise owns a 60.2% equity stake in the TA Global, which is involved in property development, property investment and property management. (The Edge Daily)

• Kumpulan Powernet Bhd has clinched a contract to undertake the development of an 8MW hydropower plant in Laos worth US$15.9 mln (RM65.9 mln).

• The project was awarded by Zhengdong Building Road & Bridge Construction Co and is expected to be completed in 18 months. (The Edge Daily)

• Cycle & Carriage Bintang Bhd’s (CCB) minority shareholders have decided to block the board's proposed selective capital repayment and reduction (SCR) of RM2.20 per share, that if passed would have paved the way for the privatisation of the auto distributor. (The Edge Daily)

• Businessman Tan Sri Wan Azmi Wan Hamzah and Datuk Mohd Zakhir Siddiqy Sidek are set to emerge as substantial shareholders of Scomi Energy Services Bhd, as they have opted to take over the company’s shares pledged against loans extended to Scomi Group Bhd, following a default last month.

• Scomi Group has failed to repay Wan Azmi and Gelombang Global Sdn Bhd (GGSB) — Mohd Zakhir’s private vehicle — RM21.0 mln each that Scomi Group had borrowed mid-last year, within the remedy period .

• Just like Scomi Group, Scomi Energy had also defaulted on its financing facilities — RM55.0 mln worth of Series E of the Guaranteed Serial Bonds issued by the latter’s subsidiary.

• Scomi Energy had requested to postpone payment to its bondholders to 28th February, 2020. The bondholders had until 21st January, 2020 to revert, but Scomi Energy has not revealed the outcome of its request. (The Edge Daily)  

Source: Mplus Research - 12 Feb 2020