Market Review

• Still, sentiments were weak across the regional stock markets as investors traded cautiously prior to the major events. The Nikkei 225 (+0.02%) and Hang Seng Index (-0.09%) ended flattish, but Shanghai Composite Index surged strongly by 1.24% as some of the listed companies encouraged employees to buy shares, coupled with the injection of more funds into the banking system by central bank to boost money supply.

• Meanwhile, shares on the local front turned negative as profit taking activities emerged after FBM KLCI traded near 1,790. Market breadth was negative with decliners led advancers by a ratio of 459-to-395. Overall market volumes stood at 2.36bn. However, trading interest was noted within the paper packaging and semiconductor related sectors.

• US stock markets snapped a two-day decline after digesting James Comey's written testimony, which it was less damaging towards Donald Trump than previously worried. However, upside was capped on most of the stocks as Brent crude oil plunged more than 3% and trading sentiments weakened.

Technical View

Upside could be capped around 1,790-1,800

• The MACD Line is hovering above the Signal Line, but the Stochastics oscillator is turning flattish after profit taking activities took place along the 1,790 level. Should there be any pullback in the key index, the support will be located around 1,760.

Market Outlook

• In the US, there could be some relief buying as most of the outcomes of the major events this week should be within expectation. Hence, the Dow may rebound and retest the near term high of 21,200, followed by another resistance along 21,400.

• However, sentiments on the local front may be dampened by the weaker crude oil prices as Malaysia is considered highly linked with commodities. Selling pressure is likely to emerge within O&G heavyweights and KLCI's upside may be capped along 1,790-1,800.

• Trading Buy - Gadang. Downside risk is limited as valuation is undemanding at 9.9x FY18 P/E (peers: 11.5x), supported by strong earnings visibility (construction orderbook at RM1.6bn and ~RM164m unbilled sales), sound balance sheet (8.5sen netcash), commendable PBT margin of 24.9% in 9MFY17 despite challenging operating environment (9MFY16: 20.2%) as well as its potential to win more projects in the near future. Meanwhile, its plantation and utility divisions are starting to bear fruits and would contribute positively to FY18/19 earnings.

Source: Hong Leong Investment Bank Research - 8 Jun 2017