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Mplus Market Pulse - 31 Mar 2020

MalaccaSecurities
Publish date: Tue, 31 Mar 2020, 09:22 AM
An official blog in I3investor to publish research reports provided by Malacca Securities research team.

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Recovery Returns

  • Despite the announcement of economic stimulus package by the Malaysian government on last Friday, it failed to spur further gains as the FBM KLCI (- 1.1%) succumbed to profit taking as the key index snapped a four-day winning streak. The lower liners finished mostly lower as the FBM Small Cap and FBM Fledgling shed 1.3% and 1,0 respectively, while the healthcare sector (+0.1%) outperformed the negative broader market.
  • Market breadth turned negative as losers ruled over the gainers on a ratio of 511-to-305 stocks. Traded slipped 33.1% to 2.83 bln shares as the renewed market volatility sapped trading interest.
  • Two-third of the key index components fell, dragged down by Hong Leong Bank (-78.0 sen), KLK (-48.0 sen), Hartalega (- 19.0 sen), RHB Bank (-18.0 sen) and Axiata (-16.0 sen). Notable decliners on the broader market include Dutch Lady (-84.0 sen), Carlsberg (-72.0 sen), Yinson (-52.0 sen), Allianz (-30.0 sen) and Ajinomoto (-28.0 sen).
  • On the flipside, Fraser & Neave (+44.0 sen), Ayer Holdings (+40.0 sen), Panasonic (+34.0 sen), SCGM (+30.0 sen) and Kluang Rubber (+33.0 sen) advanced on the broader market. Key winners on the FBM KLCI include Hong Leong Financial Group (+20.0 sen), Maxis (+13.0 sen), Tenaga (+10.0 sen), Am Bank (+7.0 sen) and Top Glove (+6.0 sen).
  • Asia benchmark staged a pullback from their recent recovery as the Nikkei fell 1.6%, spooked by the rising Covid-19 cases across the globe. The Hang Seng Index slipped 1.3%, while the Shanghai Composite finished 0.9% lower. Asia stockmarkets, meanwhile, finished mostly lower on Monday.
  • U.S. stockmarkets started off the week on a brighter note as the Dow jumped 3.2% higher following U.S. President Donald Trump’s announcement on national social distancing guidelines extended to 30th April 2020, coupled with optimism over a coronavirus treatment. The S&P 500 surged 3.4%, anchored by gains in the healthcare sector (+4.7%), whilst the Nasdaq closed3.6% higher.
  • Major European stockmarkets – the FTSE (+1.0%), CAC (+0.6%) and DAX (+1.9%), all recovered all their intraday losses to climb into the positive territory in the eleventh trading hour. In the meantime, Eurozone’s Economic Sentiment Indicator fell to 94.5 in March 2020 (from 103.4 in February 2020), marking the steepest decline since the index began in 1985.

THE DAY AHEAD

  • Expectedly, Bursa Malaysia turned lower yesterday after chalking n hefty gains in recent days as market’s focus shifted to the prospect of subdue economic performance following the rising number of Covid-19 cases. Nevertheless, the positive developments over the potential of vaccine for Covid-19 may see the recovery continue to take shape.
  • With the prevailing market sentiment turning slightly on an upbeat mode, we think that the FBM KLCI would likely to resume its’ recovery, targeting the 1,350 and 1,360 resistances level. A pullback may see the FBM KLCI to be supported at the 1,300 psychological level for the time being. However, should the aforementioned level failed to defend, the next support is pegged at the 1,250 level.
  • We take the recent pullback on the lower liners as a healthy move to allow investors to digest their recent gains before taking another stride higher. For now, buying momentum appears to have fizzled as demonstrated by the decline in trading activities. Nevertheless, the healthcare sector, particularly glove-related stocks continue to be in favour amongst investors during the period of volatility.

COMPANY BRIEF

  • Ekovest Bhd’s EkoCheras Mall has allocated more than RM10.0 mln to subsidise two months’ worth of rent for its tenants from March 1 to April 30, as well as free parking for its visitors until the end of April. The mall has remained partially open during the Movement Control Order (MCO) to support essential businesses such as supermarkets, pharmacies, and F&B outlets with delivery and takeaway services, as well as enable shoppers to get daily necessities. (The Edge)
  • LBS Bina Group Bhd has issued a RM130.0 mln perpetual Sukuk Musharakah to, among others, refinance its financing and borrowings, as well as fund its capital expenditure and asset acquisition. The sukuk represents the first tranche of its RM700.0 mln Perpetual Sukuk Musharakah Programme with a tenor of perpetual non-callable five years and an initial periodic distribution rate of 6.8 per cent per annum. (Bernama)
  • Urusharta Jamaah Sdn Bhd, the Finance Ministry’s special purpose vehicle (SPV), has ceased to be a substantial shareholder of Alam Maritim Resources Bhd, after disposing of 4.7 ml shares or a 1.3% stake in the listed company.
  • Urusharta Jamaah emerged as a substantial shareholder of Alam Maritim on 28th December 2018, when it took over Lembaga Tabung Haji’s stake in the company. The SPV previously owned a total of 92.0 mln Alam Maritim shares, equivalent to a 9.9% stake. (The Edge)

Source: Mplus Research - 31 Mar 2020

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Which companies on Bursa have high cash and low debt
KUALA LUMPUR: The second extension of the movement control order to contain the Covid-19 outbreak — now totalling six weeks until April 28 — means that economic activities will remain subdued for at least another 14 days.
The pandemic, which has infected nearly two million and killed over 100,000 worldwide, presents the worst start possible for the recession expected ahead. As the infection curve has yet to near its peak, it is anyone’s guess on the depth of the economic downturn.
Against this backdrop, survival is the prominent concern now. Investors’ attention is drawn to companies’ balance sheets instead of growth prospects, which is widely expected to be minimal in the best-case scenario, as business volume dwindles and operating cash flow shrink.
Asia Analytica data shows that of some 880 listed companies (after excluding the 40 banks, insurers and investment trusts), 597 companies listed on Bursa Malaysia have cash that is less than their short-term liabilities.
Companies in many different sectors are underlined here, from furniture companies to retailers, automotive-related firms, and a wide range of manufacturers and trading companies.
Meanwhile, 223 listed companies have an interest cover ratio of below one times, meaning their earnings before interests and tax cannot cover interest expenses for a full year. The market capitalisation of most of these companies are below RM2 billion.
Some 321 companies were already in the red last year. Of the 599 profitable ones, around 45.6% of them saw profit decline in the period. Again, most on the list are small-cap firms, according to Asia Analytica data.
It is also worth noting that the economic downturn would be a tough test on companies’ sales quality. Companies with a high portion of credit sale with mounting receivables could be at risk amid the potential cash trap.
A random check shows that 75 listed companies or 8.2% have net gearing of over 100%. Sectors with the most companies in this category are logistics, construction, oil and gas, building materials and property development.
Others with net gearing of above 80% include power companies, telecommunications companies and building materials companies. Power producers’ liabilities are usually backed up by the steady cash flow from power purchase agreements.
On the flip side, notable sectors with low net gearing average include Internet and gas utility companies, and technology solution providers.
Of 79 generic companies with market capitalisation of above RM2 billion (ex-banks, real-estate investment trusts and insurers) only 22 have a cash ratio of above one times and net gearing of below 50%, led by Petronas Chemicals Group Bhd, Petronas Gas Bhd and IOI Corp Bhd.
As reflected by the price-to-book valuations, preference is given for companies with high cash, low debt, steady recurring income and high-quality clients, such as tech companies, and broadband providers.
There are also lesser-known small-cap companies that are cash-rich with sturdy past operations.
As a fund manager pointed out that a downturn is a brewing pot for merger and acquisition activities, as smaller, cash-rich companies with good assets or business prospects usually become undervalued after the market selldown.
The first quarter’s (1Q20) financial result will show how much cash was exhausted amid the two-week shutdown in the second half of March, while prospects of the entire half of 2Q20 being under movement restriction are still visible.

2020-04-15 11:27

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