Beware Of Dead Cat Bounce

• The FBM KLCI turned positive today, buoyed by mild bargain-hunting activities in selected heavyweights as investors took a breather from worsening coronavirus epidemic and geopolitical uncertainties. Tracking the key-index, the lower liners – the FBM Small Cap, the FBM Fledgling and FBM ACE also churned out minor gains, alongside all the broader market constituents.

• Market breadth turned upbeat as advancers overturned the decliners on a ratio of 531-to-380 stocks. Traded volumes, however, fell 22.5% to 3.13 bln shares, as investors adopt a wait-andsee approach amid heightened political uncertainties.

• Major glove manufacturers like Top Glove (+18.0 sen) and Hartalega (+14.0 sen) continued its uptrend momentum, followed by Malaysian Airports (+19.0 sen), Tenaga Nasional (+16.0 sen) and Public Bank (+12.0 sen), while other gainers were Carlsberg (+RM2.24), Fraser & Neave (+RM1.06), BAT (+68.0 sen), Heineken Malaysia (+64.0 sen) and Greatech Technology (+47.0 sen).

• On the flipside, PPHB (-17.0 sen), Padini (-13.0 sen), Sungei Bagan Rubber (-10.0 sen), UMW Holdings (-9.0 sen) and Master Pack (-8.0 sen) led the broader market decliners. Amongst the underperforming heavyweights were Nestle (-40.0 sen), Hong Leong Financial Group (-26.0 sen), Petronas Dagangan (-20.0 sen), Hap Seng Consolidated (-12.0 sen) and Petronas Gas (-10.0 sen).

• Hong Kong stocks outperformed other key regional markets on Tuesday, as the Hang Seng Index closed with minor gains, helped by strong gains in Tencent. In contrast, the Nikkei lost 3.3%, while extended outflows of foreign capital kept the Shanghai Composite in the red yet again. Other ASEAN equities, however, closed mostly higher.

• Key U.S. equities posted back-to-to losses, on renewed virus fears after U.S. health regulators warned of potentially higher number of coronavirus infections in the country. The Dow slide lower after the opening bell, while the S&P 500 and the Nasdaq closed down by 3.0% and 2.8% respectively.

• European bourses also tracked the negative sentiment in global equities, weighed down by rising concerns of worsening economic fallout amid the Covid-19 outbreak. The FTSE (-1.9%), the DAX (-1.9%) and the CAC (-1.9%) all retreated.

The Day Ahead

• After yesterday’s rebound from the previous session’s steep fall, we think the key index will attempt to continue it’s near term recovery now that it has rebounded back to the 1,500 psychological level. Even with the possible upsides, however, we think there is still substantive tentativeness as there are remains few catalysts to entice a stronger recovery, in our view.

• As it is, market sentiments may remain tepid on concerns over the state of the country’s political instability and economic environment in 2020 that could leave the FBM KLCI to drift for longer. Consequently, we continue to think that the gains are likely to be limited with the next resistances pegged at 1,515 and 1,530 levels respectively. The support, meanwhile, is located at 1,480 level.
• The lower liners and broader market shares are also staging a rebound and may continue to pick-up some gains over the near term. However, the gains will still be tepid as investors continue to monitor on the recent and upcoming batch of quarterly earnings releases.

Company Update

• Econpile Holdings Bhd’s 2QFY20 net profit stood at RM8.7 mln vs. a net loss of RM34.4 mln as bottomline normalise from the losses incurred from the projects costs rationalisation, cost overrun and impairment in trade impairments in 2QFY19. Revenue for the quarter, however, fell 7.1% Y.o.Y to RM137.7 mln on the execution of lower orderbook.

• For 1HFY20, cumulative net profit stood at RM17.5 mln vs. a net loss of RM19.4 mln recorded in the previous corresponding period. Revenue for the period declined 21.6% Y.o.Y to RM273.1 mln.

Comments

• The reported earnings came below our expectation, amounting to 41.3% of our estimated net profit of RM42.4 mln for the year. The reported revenue, however, came within our expectations, amounting to 47.9% of our full-year forecast of RM569.7 mln. The variance in the bottomline is mainly due to higher effective tax rate at 27.4% vis-a-vis our assumption of 24.0%.

• Although the reported earnings came below our expectations, we made no changes to our earnings forecast as we expect earnings recovery to pick up in 2HFY20. Hence, we retain our HOLD recommendation on Econpile with an unchanged target price of RM0.70. Our target price is derived by ascribing an unchanged target PER of 20.0x to its FY21 EPS of 3.5 sen.

• Suria Capital Holdings Bhd’s 4Q2019 net profit rose 37.3% Y.o.Y to RM10.9 mln due to lower effective tax rate that cushion the weakness on topline. Revenue for the quarter slipped 17.4% Y.o.Y to RM70.6 mln.

• For 2019, cumulative net profit declined marginally by 1.4% Y.o.Y to RM52.2 mln. Revenue for the year contracted 31.3% Y.o.Y to RM275.2 mln.

Comments

• The reported earnings came below our expectations, making up to 93.3% of our previous net profit estimate of RM56.0 mln. The reported revenue also fell short of our expectations, amounting to only 91.5% of our most recent full-year forecast of RM300.7 mln. The lower turnover was due to the recognition of a one-off project in 2018, coupled with the weakness in its port operations segment.

• We maintained our HOLD recommendation on Suria, but with a lower target price of RM1.37 (from RM1.45), taking into the account of the slowdown in business activity due to the Covid-19.

• We value Suria through a sum-of-parts (SOP) approach as we valued both its port operations and property development segments on a discounted cash flow approach (key assumptions include a WACC of 8.5%, 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 a 10.0x (unchanged) target PER to both its logistics and bunkering contracts as well as engineering and ferry terminal operations businesses, based on their potential earnings contribution in 2020.

COMPANY BRIEF

• Omesti Bhd has been appointed by Huawei Technologies Co. Ltd. as Authorised System Integration Partner for its Business Support Systems (BSS), which is designed for application with customer relationship management (CRM) and billing activities, primarily in the telecommunications sector. The assessment and authorisation process involved a three-month multicomponent programme, comprising an evaluation of full-time Omesti employees in Nanjing, as well as leadership meetings at Huawei Technologies Headquarters in Dongguan. (Bernama)

• Nestle (Malaysia) Bhd’s 4Q2019 net profit increased 6.5% Y.o.Y to RM131.8 mln, supported by strong operational sales execution, anticipation of market trends and a sustained stream of innovations. Revenue for the quarter, however, fell 1.4% Y.o.Y to RM1.33 bln.

• For 2019, cumulative net profit gained 2.1% Y.o.Y to RM673.9 mln. Revenue for the year, however, was flat at RM5.52 bln. A dividend of RM1.40 a share was announced. (The Star Online)

• Ekovest Bhd's 2QFY20 net profit fell almost 33.9% Y.o.Y to RM29.0 mln, due to completion of higher margin construction works. Revenue for the quarter, however, rose 6.4% Y.o.Y to RM384.3 mln.

• For 1HFY20, cumulative net profit rose 5.2% Y.o.Y to RM92.4 mln. Revenue for the period grew 9.8% Y.o.Y to RM731.1 mln. (The Edge Daily)

• Hibiscus Petroleum Bhd's 2QFY20 net profit grew 2.3% Y.o.Y to RM51.3 mln on higher topline growth. Revenue for the quarter gained 64.6% Y.o.Y to RM271.9 mln.

• For 1HFY20, cumulative net profit dropped 55.0% Y.o.Y to RM67.5 mln. Revenue for the period fell 17.9% Y.o.Y to RM431.2 mln. (The Edge Daily)

• IJM Corp Bhd's 3QFY20 net profit fell 46.7% Y.o.Y to RM49.8 mln, dragged by higher operating expenses and bigger losses of associates. Revenue for the quarter contracted 4.4% Y.o.Y to RM1.44 bln.

• For 9MFY20, cumulative net profit rose marginally by 0.1% Y.o.Y to RM179.2 mln. Revenue for the period grew 7.0% Y.o.Y to RM4.56 bln. (The Edge Daily)

• Inari Amertron Bhd’s 2QFY20 net profit slumped nearly 31.9% Y.o.Y to RM37.5 mln, dragged down by change in product mix, higher depreciation costs and a less favourable foreign exchange rate. Revenue for the quarter fell 11.6% Y.o.Y to RM265.0 mln.

• For 1HFY20, cumulative net profit declined 26.0% Y.o.Y to RM85.2 mln. Revenue for the period dropped 7.0% Y.o.Y to RM582.0 mln. A second interim dividend of one sen per share was declared. (The Edge Daily)

• IOI Properties Group Bhd's 2QFY20 net profit decreased 7.4% Y.o.Y to RM199.8 mln, on lower contribution from the property development segment in China and Johor. Revenue for the quarter fell 14.4% Y.o.Y to RM564.1 mln.

• For 1HFY20, cumulative net profit rose 2.9% Y.o.Y to RM336.4 mln. Revenue for the period, however, fell 9.1% Y.o.Y to RM1.10 bln. (The Edge Daily)

• Mega First Corp Bhd's 4Q2019 net profit jumped 170.1% Y.o.Y to RM84.2 mln, thanks to higher profit from construction segment and maiden income from energy sales. Revenue for the quarter, however, fell 11.5% Y.o.Y to RM195.5 mln

• For 2019, cumulative net profit increased 18.9% Y.o.Y to RM153.7 mln. Revenue for the year, however, fell 19.7% Y.o.Y to RM701.9 mln. A final dividend of six sen per share for the quarter was declared. (The Edge Daily)

• MMC Corp Bhd's 4Q2019 net profit fell 43.1% Y.o.Y to RM68.1 mln, dragged by slower work progress of the Klang Valley Mass Rapid Transit (KVMRT) project. Revenue for the quarter sank 29.5% Y.o.Y to RM1.10 bln.

• For 2019, cumulative net profit grew 15.9% Y.o.Y to RM255.2 mln. Revenue for the year, however, decreased 5.2% Y.o.Y to RM4.72 bln. (The Edge Daily)

• Petronas Dagangan Bhd’s (PetDag) 4Q2019 net profit jumped 171.2% Y.o.Y to RM126.6 mln, largely attributed by higher sales volume and better gross profit, following the higher Mean of Platts Singapore (MOPS) prices. Revenue for the quarter, however, declined marginally by 1.4% Y.o.Y to RM7.79 bln.

• For 2019, cumulative net profit fell 2.4% Y.o.Y to RM829.5 mln. Revenue for the year, however, improved marginally by 0.7% Y.o.Y to RM30.29 bln. An interim dividend of 25 sen per share and a special dividend of 15 sen per share for the quarter were declared. (The Edge Daily)

• Sunway Bhd’s 4Q2019 net profit grew 10.5% Y.o.Y to RM200.3 mln, on higher contributions from its property development, quarry and property investment segments. Revenue for the quarter, however, declined 6.8% Y.o.Y to RM1.35 bln.

• For 2019, cumulative net profit rose 18.8% Y.o.Y to RM766.6 mln. Revenue for the year, however, decreased 11.6% Y.o.Y to RM4.78 bln. A second interim dividend of 4.5 sen per share for the quarter was declared. (The Edge Daily)  

Source: Mplus Research - 26 Feb 2020