Market Review

• Asian stock markets trended higher following the gains on Wall Street as investors’ sentiments improved on the back of better-than-expected 1Q18 earnings, coupled with firmer crude oil.

• Meanwhile, tracking the regional performance as well as the rally in selected commodities (oil and aluminium), the FBM KLCI surged towards the all-time-high zone to end at 1,895.18 pts (+0.84%). Market breadth was positive with a ratio of 5-to-4. Most of the O&G (Sapura Energy and Hibiscus) and aluminium-related (Press Metal and Alcom) stocks were traded actively higher.

• Despite the positive ongoing earnings season in the US, stock in general traded negatively following the softer guidance from Taiwan Semiconductor Manufacturing, resulting in a drop in most of the tech giants (Apple, Nvidia and Micron). The Dow and S&P500 fell 0.34% and 0.57%, respectively.

Technical View

Still uptrend intact, but overbought stochastics

• The FBM KLCI rallied towards the all-time-high zone, ended with 8 positive sessions out of the past 10 trading sessions; suggesting an encouraging uptrend move. The MACD and RSI are positive, but the Stochastics are slightly overbought. We anticipate profit taking activities to emerge and the resistance will be envisaged around 1,900-1910, while the support will be set at 1,870-1,880.

Market Outlook

• Dow outlook: Although market consensus is expecting a stronger-than-expected 1Q18 earnings season in the US, market tone may turn negative with investors focusing on the increasing 10-year Treasury yield that surpassed 2.90% yesterday. Hence, the Dow’s near term upside could be located around 25,000-25,500.

• KLCI outlook: Tracking the softer Wall Street performances, traders on the local front could turn on the profit taking mode as the FBM KLCI is trading near the all-time-high zone. We expect the selling spell could emerge selectively within the small cap and lower liners as well amid overbought signals. Nevertheless, we see commodities related (oil and aluminium) stocks are likely to trend higher.

• Trading Buy – 3A. At RM1.03, 3A is trading at undemanding valuations of 13.2x (12.6x if ex-cash of 5.6sen) FY18 P/E and supported by a steady 9% EPS CAGR from FY18-20. Given the China exit by end 2017, 3A’s growth in the coming years will be underpinned by lower raw material prices (amid firmer ringgit), steady underlying demand growth in the F&B industry. We expect prices to stage a triangle breakout in the short term with upside targets at RM1.05-1.23. Key supports are RM0.98-1.00. Cut loss at RM0.945.

Source: Hong Leong Investment Bank Research - 20 Apr 2018