Market review

• Asian equities trended mixed after G20 meeting over the weekend. The Shanghai Composite Index rose 0.40% on the back of stronger property sales as it jumped 25.1% yoy in January and February (strongest annual growth in 7 years). The FBM KLCI managed to close on a positive note at 1,749.41 pts (+0.24%) after hitting an intra-day high of 1,755.26 pts. Meanwhile, trading activities spiked up, where market volumes stood at 6.02bn shares (31- month high) as penny stocks like PUC and OLYMPIA topped the actives list. Market participants traded stocks under e-commerce and logistics as Alibaba plans to set up a regional distribution hub in Malaysia.

• Wall Street ended on a mixed note as investors were waiting for the details on corporate tax cuts plan by Donald Trump, coupled with US dollar sliding after the G20 meeting. The Dow and S&P500 slipped 0.04% and 0.20% respectively.

Technical view

Another inverted hammer within the range of 1,750-1,760 with overbought signals

• The Stochastics oscillator is overbought and inverted hammer was formed around the resistance region of 1,750-1,760 – expect short term pullback to emerge. FBM KLCI’s support will be located around 1,720-1,730.

Market outlook

• As both the US dollar and crude oil trended on a lackluster mode, we expect near term sentiments to trade on sluggish mode and the Dow may trade sideways below 21,000. Meanwhile, traders may take profit on counters that have rallied after an overheated trading week. Nevertheless, traders may rotate into laggard stocks under the technology and construction sectors.

• Trading Buy – GUH. Riding on the upcoming Internet of Things (IoT) wave, we can expect higher contributions from the PCB manufacturing division with the increasing use of wearable device and augmented reality heads-up display. Should there be a turnaround of its utilities division in FY2017, we expect more contribution towards its bottom line. We expect follow-through buying interest to pick up, targeting the RM0.94-0.98, followed by RM1.03. Support will be set around RM0.895-0.88.

• Trading Buy- PESONA. Pesona offers investors exposure to a pure construction play with an incoming stream of recurring earnings. Its orderbook stands at a record RM2.1bn, translating to a 5.4x cover on FY16 construction revenue, supported by robust earnings growth (FY16-18 earnings CAGR of 55%) and increasing ROEs (improving from 14.3% in FY16 to 26.2% in FY18). A cheaper trading exposure is through PESONA-WC (Expiry: 27 Jan 2020; Discount: 2.3%; Gearing: 1.66x)

Source: Hong Leong Investment Bank Research - 21 Mar 2017