Downside Risk Persist

• The FBM KLCI remained weak after trading in the red for the entire trading session before slumping 3.9% lower following the weakness on Wall Street overnight and its’ regional peers yesterday. The lower liners - the FBM Small Cap (-9.8%), the FBM Fledgling (- 7.9%) and the FBM ACE (-10.6%), all took a dive, while the broader market finished mostly in the red, with the Energy sector (-25.3%) took the biggest loss.

• Market breadth remained negative as losers overpowered winners on a ratio of 1139-to-120 stocks. Meanwhile, traded volumes jumped 151.5% to 6.66 bln shares as profit taking activities escalated.

• Twenty seven of the key index were painted in the red, led by Petronas Chemical (-RM1.25), Petronas Dagangan (-RM1.18), KLK (-86.0 sen), MISC (-75.0 sen) and Hong Leong Financial Group (- 70.0 sen). Meanwhile, Carlsberg (- RM1.34), Yinson (-RM1.01), Dutch Lady (-RM1.00), KESM Industries (-95.0 sen) and Panasonic Manufacturing (-92.0 sen) remained downbeat on the broader market.

• Significant advancers on the broader market were Widetech (+14.0 sen), Rapid Synergy (+13.0 sen), Kossan (+8.0 sen), Toyo Ink Group (+7.0 sen) and Imaspro Corporation (+6.0 sen). Meanwhile, only three winners on the FBM KLCI were Nestle (+80.0 sen), Top Glove (+11.0 sen) and Hartalega (+2.0 sen).

• Asian benchmark indices continue their slide as the Nikkei sank 5.1% on weakness in oil and gas shares as the energy sector struggle with the plunge in global oil prices. The Shanghai Composite closed 3.0% lower, while the Hang Seng Index dropped 4.2%. ASEAN stockmarkets closed mostly lower on Monday.

• The Dow tumbled more than 2000 points amid panic selling as the oil prices crashes after Saudi Arabia and Russia started a price war, coupled with the spread of Covid-19 globally, compounding to fears over a global recession. Likewise, the broader market saw the S&P 500 (-7.6%) sank with all eleven major sectors in the red after triggering an automatic 15-minute circuit breaker, while the Nasdaq slumped 7.3%.

• European benchmark indices- the FTSE (- 7.6%), CAC (-8.4%) and DAX (-7.9%), all took a beating, taking cue from the weakness in major Asian equities. The weakness was compounded by coronavirus panic as Italy made a move to lockdown the entire country.

The Day Ahead

• The sharp dive on crude oil prices sent global equities in tatters as Bursa Malaysia endured another rout on Monday. Compounding with the relentless foreign fund outflow, market conditions are increasingly frail and the weakness is likely to extend the selling spree on Bursa Malaysia stocks over the near term.

• Selloff on U.S. stocks is likely to resonate globally amid the fresh concern over the crude oil supply overhang coupled with rising risk of global recession stemmed from the Covid-19 outbreak. On Bursa Malaysia, market conditions will still be reeling from the sharp downturn of crude oil prices and with the key index breaking the 1,455 support, conditions are turning increasingly dour with the next support pegged at the 1,400 level. We reckon the FBM KLCI may trade sharply lower at the opening bell before mild bargain hunting activities take shape with the 1,445 and 1,455 levels are the resistances.

• The lower liners and broader market shares are still undergoing a steep pullback amid the severely dented market sentiments. We see retail players continue to unwind their position, particularly in oil & gas related stocks in view of the weak market conditions and stay on the side lines until stability comes into play, which we do not think will materialise anytime soon.

Company Update

• Leong Hup International Bhd (LHI) is acquiring a feed mill in Vietnam for a total consideration of RM67.0 mln, to diversify into aquatic feed. Following the acquisition and upon installation of an additional production line for poultry feed, LHI’s combined capacity in Vietnam is expected to increase by up to 17.5% per annum. (The Edge)

Comments

• We are positive on LHI’s move on their acquisition as part of their expansion strategy to be one the largest fully integrated poultry player in the ASEAN region. We tweaked our earnings forecast higher by 1.6% and 1.3% to RM176.3 mln and RM195.0 mln for 2020 and 2021 respectively to account for the increased feedmill capacity.

• Consequently, we re-iterated our BUY recommendation on LHI with a slightly higher target price of 0.82 (from RM0.81) as we assigned an unchanged target PER of 17.0x to our revised 2020 estimated EPS of 4.8 sen. The assigned target PER represents a 20.0% discount to its local and regional peers’ average of 21.5x, after taking into account of the larger market capitalisation of its peers like Charoen Pokphand Foods PLC and ThaiFoods Group PLC in Thailand, JAPFA Ltd in Singapore, and QL Resources Bhd in Malaysia.

COMPANY BRIEF

• Daibochi Bhd’s 2QFY20 net profit stood at RM14.6 mln on the back of revenue of RM159.0 mln, underpinned by strong sales. This was compared to the preceding quarter (1QFY20) that saw both the net profit and revenue gained 33.3% and 4.2% respectively.

• For 1HFY20, cumulative net profit stood at RM25.6 mln on the back of revenue of RM311.5 mln. There was no comparison to the previous corresponding quarter and period due to the change in financial year end from 31st December to 31st July, effective April 2019. (The Star)

• Uzma Bhd’s wholly-owned subsidiary MMSVS Group Holding Co Ltd has been awarded a contract by Mubadala Petroleum’s MP B5 (Thailand) Ltd, for the provision of coil tubing services, with a total sum value of about RM23.0 mln. This brings to three, the number of contracts secured by the group since last week, with an accumulated value of approximately RM160.0 mln. (The Edge)

• Kim Teck Cheong Consolidated Bhd (KTC) has been appointed by Petronas Dagangan Bhd as its master distributor to widen the distribution and sale for twelve selected product categories. The appointment covers for all Mesra and Mini Mesra Stores in Sabah and Sarawak, with effect from 1st March 2020 for a period of three years. (The Edge)

• Bina Darulaman Bhd (BDB), Kedah’s state-owned construction company, has been awarded the state's road maintenance contract by the Kedah state government, valued at about RM210.0 mln. The duration of the contract is for thirty-six months, starting from the date of site possession on 23rd March 2020. (The Edge)

• Kanger International Bhd has signed a 10-year lease agreement for two of its commercial buildings located in Ganzhou City, China. The initial rental income per year for both commercial buildings amount to approximately RM11.1 mln, and is subject to scheduled rent increases. (The Edge)

• Magni-Tech Industries Bhd’s 3QFY20 net profit dropped 8.3% Y.o.Y to RM32.7 mln, due to higher operating costs incurred, relative to revenue and negative forex impact. Revenue for the quarter, however, increased 1.5% Y.o.Y to RM313.5 mln.

• For 9MFY20, cumulative net profit gained 15.1% Y.o.Y RM93.0 mln. Revenue for the period added 11.9% Y.o.Y to RM942.2 mln. A single tier interim dividend of 2.8 sen per share was declared. (The Edge)

• Dolphin International Bhd’s whollyowned subsidiary Dolphin Engineering (M) Sdn Bhd (DESB) is claiming special damages totalling RM3.3 mln against its subcontractor Tori Construction, which is involved in the Lubok Antu Palm Oil Mill project in Sarawak. DESB has filed a writ of summons and statement of claim in the High Court in Kuching, to seek the claim. (The Edge)

• Digital platform developer AppAsia Bhd announced it will be diversifying into the money lending business via providing flexible financing schemes that focus on segments which are underserved by licensed financial institutions. The group anticipates that the moneylending business will potentially contribute 25.0% or more of the group’s net profits. (The Edge)

• CIMB Group Holdings Bhd has appointed its group chief operating officer Omar Siddiq Amin Noer Rashid as officer-in-charge with immediate effect, following the resignation of group chief executive officer Tengku Datuk Seri Zafrul Abdul Aziz, upon his appointment as the new finance minister.

• Prior to joining CIMB, Omar Siddiq was the head of group wholesale banking at RHB Bank Bhd, and also former executive director and group chief financial officer at Malaysia Airlines Bhd. (The Edge)  

Source: Mplus Research - 10 Mar 2020