Market Review

• Asian stock markets ended on a negative mode post OPEC decision and investors continued to take profit as most of the key regional indices were overbought.

• The Malaysia’s stock market trended lower after Brent crude oil plunged more than 2% and FBM KLCI fell 0.09% to 1,772.30 pts(+0.23% wow) led by GENM and IHH. Selling pressure intensified on the small cap and lowers liners, contributing to a negative market breadth; there were 7 decliners for every 2 advancers on the broader market. Overall traded volumes stood at 2.86bn.

• US equities trended sideways ahead of the Memorial Day weekend; investors also maintained cautious trading tone as second reading of 1Q2017 US GDP stood at a modest growth pace of 1.2%, but was below the Trump's goal. Meanwhile, Dollar Index was firmer around the 97 level with a positive bias move.

Technical View

Indicators weakening, upside capped at 1,785

• The key index rejected the 1,780 level and the weekly MACD Histogram turned lower last week, while the daily MACD Line is hovering below the daily Signal Line. As the momentum oscillators are flattish, the KLCI could be due for a pullback formation over the near term.

Market Outlook

• In the US, the buying interest may turn softer as market heads into month of June with the anticipation of potential interest rates hike, coupled with the weaker crude oil prices after the OPEC decision. Also, investors may monitor few key economic data that will be released over the week such as U.S. jobs report, China’s and UK’s manufacturing data.

• Meanwhile, share prices on Bursa Malaysia could see further selling pressure after the FBM KLCI rejected 1,780 several times over the past two weeks. Also, with the final week of the financial reporting season, we opine that most of the trading activities are likely to slow down as investors may need to reassess the financial health of the companies in order to reaffirm their trading strategy.

• Closed positions. Last Friday, we took profit on EMETAL (11.1 % gain) and HTPADU (8% gain). Due to weakening technicals, we also cut loss on TUNEPRO (3.6% loss) and BENALEC (3.9% loss).

• Trading Buy - CSCSTEL. At RM2.06, CSCSTEL is trading at trailing 10x PE. Excluding the 52 sen netcash/share, the underlying business is only valued at 7.4x (on par with closest peer Mycon 7.5x trailing P/E but no dividend), supported by attractive dividend yield of 6.8% (14 sen dividend will go ex on 28 June), which could provide sufficient margin of safety to cushion further sharp downside risks in share price. Management is also positive on overall 2017 outlook given the sustained momentum of its products, falling raw materials prices, steady steel prices coupled with the recovery in RM (vs US$).

Source: Hong Leong Investment Bank Research - 29 May 2017