• Tacking the slump on Wall Street overnight, the FBM KLCI endured another session of volatility before finishing 0.4% lower on Wednesday on the escalating Covid-19 virus and uncertainty over the domestic political embargo. Likewise, the lower liners – the FBM Small Cap (-1.1%), the FBM Fledgling (-0.1%) and FBM ACE (-0.3%), all slipped, while the broader market finished mostly lower.
• Market breadth turned negative as decliners overcame the advancers on a ratio of 538-to-350 stocks. Traded volumes, however, gained 23.7% to 3.87 bln shares as investors continue to lock in recent gains.

• Petronas Chemicals (-55.0 sen) slumped after reporting a weak set of quarterly earnings, while other big board decliners were Public Bank (-32.0 sen), Nestle (- 30.0 sen), Hap Seng Consolidated (-18.0 sen) and Hong Leong Financial Group (- 8.0 sen). Notable decliners on the broader market include consumer products stocks like Carlsberg (- RM1.44), Heineken (-64.0 sen), Dutch Lady (-62.0 sen) and Fraser & Neave (- 22.0 sen), while Datasonic slipped 36.0 sen.

• In contrast, Ayer Holdings (+52.0 sen), Batu Kawan (+48.0 sen), Ornapaper (+23.0 sen), Allianz (+22.0 sen) and BAT (+22.0 sen) advanced on the broader market. Petronas Gas (+40.0 sen), MISC (+20.0 sen), Petronas Dagangan (+16.0 sen), Tenaga Nasional (+8.0 sen) and Hong Leong Bank (+6.0 sen) advanced on the local bourse.

• Asia benchmark indices took another swipe, taking cue from the weakness on Wall Street overnight as the Nikkei slipped 0.8%. The Shanghai Composite fell 0.8% to close below the 3,000 psychological level, while the Hang Seng Index finished 0.7% lower. ASEAN stockmarkets also follow suite to close in the negative territory on Wednesday.

• U.S. stockmarkets extended their slide as the Dow fell 0.5% to close below the 27,000 psychological level, dragged down by Walt Disney (-3.8%) after Chief Executive Robert Iger was stepping aside. On the broader market, the S&P 500 declined 0.4%, but the Nasdaq finished 0.2% higher.

• Earlier, European benchmark indices closed mostly higher, recovery from the recent slump as the FTSE and CAC added 0.4% and 0.1% respectively on mild bargain hunting activities. The DAX, however, remain in the red, positing a decline of 0.1%.

The Day Ahead

• The recovery on the local bourse was short lived, termed as a dead cat bounce as volatility on Wall Street kept gains as bay again. Apart from the Covid-19 impact on global economy, uncertainty over Malaysia’s political agenda is expected to prolong with speculation over a potential snap election to be called. In the interim, the anticipated stimulus packaged scheduled to be announce today may provide some cushion to the negative market sentiment.

• We think that Malaysian equities will remain choppy until the government irons out the political instability. With the local bourse continues to flirt below the 1,500 psychological level, further weakness is expected to see the FBM KLCI heading towards the 1,480 support level. On the upside, any gains stimulated from the stimulus package announcement may propel the key index towards the immediate resistances located at 1,515 and 1,530 levels respectively.

• It was another day to forget on the lower lines that continue to be beleaguered by profit taking activities. For now, we expect gains are difficult to come by as market players to adopt the hit-and-run approach. Nevertheless, market interests remain firm with selective rotational plays as trading volumes continue to hold above the 2.50 bln level over the past weeks.

Company Update

• OCK Group Bhd’s 4Q2019 net profit improved marginally by 1.4% Y.o.Y to RM7.2 mln, mainly boosted by lower effective tax rate that offset the slowdown in topline. Revenue for the quarter fell 8.3% Y.o.Y to RM123.3 mln, dragged down by the Telecommunication Network Services (TNS) and trading segment.

• For 2019, cumulative net profit expanded 15.6% Y.o.Y to RM28.1 mln. Revenue for the year grew 3.6% Y.o.Y to RM473.7 mln.

Comments

• The reported earnings came within expectations, amounting to 98.3% of our net profit forecast of RM28.5 mln for 2019. The reported revenue amounted to 94.9% of our estimated 2019 revenue of RM499.2 mln. The mild variance in the topline is due to the slower contribution from the TNS segment.

• With the reported earnings came within our estimates, we made no changes to our earnings forecast. We maintain our BUY recommendation on OCK, but with a lower target price of RM0.65 (from RM0.75) after taking into account of the recent shares dilution from the private placement took place in November 2019.

• 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.

• Serba Dinamik Holdings Bhd’s 4Q2019 net profit added 24.8% Y.o.Y to RM140.9 mln, due to the stronger execution of its orderbook across both its operational & maintenance (O&M) and engineering, procurement, construction and commissioning (EPCC) segments, coupled with the lower effective tax rate. Revenue for the quarter rose 39.1% Y.o.Y to RM1.36 bln.

• For 2019, cumulative net profit climbed 26.9% Y.o.Y to RM496.6 mln. Revenue for the year improved 37.9% Y.o.Y to RM4.53 bln.

Comments

• The reported earnings came within our forecast, accounting to 102.6% of our full year net profit forecast of RM483.9 mln for 2019. The reported revenue, however, came above our expectations, accounting to 112.1% of our full year estimate of RM4.04 bln. The variance in topline is due to the higher execution of existing orderbook.

• With the reported earnings within our expectations, we made no changes to our earnings forecast amid the seasonally stronger earnings in the final quarter of the financial year as traditionally displayed over the years.

• Therefore, we maintain our BUY recommendation on Serba Dinamik with an unchanged target price of RM2.63. We arrive at our target price by ascribing a PER of 15.0x to its’ forecast 2020 EPS of 17.6 sen. The ascribed target PER is similar to midlarge cap oil & gas peers’ average of 16.0x.

• Separately, Prestariang Bhd is selling University Malaysia of Computer Science and Engineering (UNIMY) which is owned and operated by its unit Prestariang Education Sdn Bhd to Serba Dinamik Holdings Bhd’s whollyowned subsidiary Serba Dinamik Group Bhd (SDGB) for RM2.5 mln. The disposal is part of Prestariang’s rationalisation plans to improve cash flow and working capital, while resetting the business to return to profitability.

• The proposed disposal of Prestariang Education to SDGB is expected to be completed by the end of 2Q2020. The acquisition of a tertiary educational institute will allow SDGB to accelerate the expansion of its education and training business unit, which leverages on the oil and gas services and engineering firm’s industrial experience to design training curriculum specifically for the industry.

• We are neutral on the abovementioned announcement that will see minimal impact to the group’s bottomline. Nevertheless, the abovementioned acquisition will complement Serba Dinamik’s current education and trading segment. As there were no changes made in our forecast, we maintained our BUY recommendation on Serba Dinamik with an unchanged target price of RM2.63. We arrive at our target price by ascribing a PER of 15.0x to its forecast 2020 EPS of 17.5 sen. The ascribed target PER is similar to mid-large cap oil & gas peers’ average of 16.0x.

COMPANY BRIEF

• Public Bank Bhd’s 4Q2019 net profit was flat at RM1.41 bln. Revenue for the quarter increased marginally by 0.7% Y.o.Y to RM5.67 bln.

• For 2019, cumulative net profit declined marginally by 0.2% Y.o.Y RM5.58 bln. Revenue for the year, however, gained 1.9% Y.o.Y to RM22.45 bln. A final dividend of 40 sen per share was declared. (The Star)

• Hong Leong Bank Bhd’s 2QFY20 net profit rose 2.1% Y.o.Y to RM701.8mil, boosted by higher net interest income. Revenue for the quarter gained 8.3% Y.o.Y to RM1.24 bln.

• For 1HFY20, cumulative net profit climbed 6.6% Y.o.Y to RM1.39 bln. Revenue for the period increased 2.6% Y.o.Y to RM2.45 bln. An interim dividend of 16.0 sen a share was declared. (The Star)

• Petronas Chemicals Group Bhd’s (PCG) 4Q2019 net profit slumped 66.3% Y.o.Y to RM340.0 mln, due to lower plant utilisation. Revenue for the quarter fell 16.4% Y.o.Y to RM4.23 bln

• For 2019, cumulative net profit slipped 41.3% Y.o.Y to RM2.81 bln. Revenue for the year declined 16.4% Y.o.Y to RM16.37 bln. A second interim dividend of 7 sen a share was declared. (The Star)

• SP Setia Bhd’s 4Q2019 net profit fell 26.8% Y.o.Y to RM70.1 mln, dragged down by higher finance costs and lower contribution from property development segment, partly due to higher volume of development phases completed and handed over in 4Q2018. Revenue for the quarter declined 21.9% Y.o.Y to RM796.2 mln.

• For 2019, cumulative net profit dropped 48.3% Y.o.Y to RM343.7 mln. Revenue for the year, however, grew 9.3% Y.o.Y to RM3.93 bln. A dividend of 1 sen per share for the quarter under review was declared. (The Sun)

• Unisem (M) Bhd’s 4Q2019 net loss stood at RM26.9 mln, compared with a net profit of RM23.5 mln recorded in the previous corresponding quarter on lower average selling prices. Revenue for the quarter fell 3.6% Y.o.Y to RM319.8 mln.

• For 2019, cumulative net loss stood at RM9.5 mln vs. a net profit of RM95.8 mln recorded in 2018. Revenue for the year fell 7.4% Y.o.Y to RM1.25 bln. A final dividend of two sen per share was announced. (The Edge)

• Sime Darby Property Bhd’s 4Q2019 net profit stood at RM103.0 mln vs. a net loss of RM347.5 mln recorded in 4Q2018 on higher contributions from property development. Revenue for the quarter rose 12.7% Y.o.Y to RM888.9 mln.

• For 2019, cumulative net profit stood at RM598.5 mln vs. a net loss of RM238.5 mln recorded in 2018. Revenue for the year swelled 30.0% Y.o.Y to RM3.18 bln. A second interim dividend of two sen per share, payable on 20th April 2020 was declared. (The Edge)
• Genting Plantations Bhd’s 4Q2019 net profit surged 332.3% Y.o.Y to RM61.7 mln, supported by higher crude palm oil (CPO) prices. Revenue for the quarter rose 33.4% Y.o.Y to RM643.6 mln.

• For 2019, cumulative net profit fell 13.8% Y.o.Y to RM142.1 mln. Revenue for the year, however, climbed 19.1% Y.o.Y to RM2.27 bl. A final single-tier dividend of 9.5 sen per share was declared. (The Edge)

• Malaysian Pacific Industries Bhd’s 2QFY20 net profit rose 15.0% Y.o.Y to RM45.1 mln, mostly due to higher contribution from its Asia segment, which mitigated falls at its US and Europe segments. Revenue for the quarter grew 3.9% Y.o.Y to RM413.8 mln,

• For 1HFY20, cumulative net profit improved marginally by 0.5% Y.o.Y to RM81.9 mln. Revenue for the period, however, fell 3.6% Y.o.Y to RM782.9 mln. (The Edge)

• Padini Holdings Bhd’s 2QFY20 net profit grew 4.9% Y.o.Y to RM55.8 mln, thanks to increased sales after the opening of four new stores. Revenue for the quarter rose 7.0% Y.o.Y to RM495.1 mln.

• For 1HFY20, cumulative net profit climbed 6.0% Y.o.Y to RM75.4 mln. Revenue for the period rose 5.2% Y.o.Y to RM833.2 mln. A third interim dividend of 2.5 sen a share, payable on 30th March 2020 was declared. (The Edge)  

Source: Mplus Research - 27 Feb 2020