MARKET REVIEW

Global. Asian markets traded mixed amid rising concern over a potential “massive Covid19 outbreak” in Korea coupled with nagging US-China tension following Trump’s latest move to further tightening of restrictions on Huawei, aimed at limiting the Chinese telecommunications giant’s access to commercially available chips. Overnight, both the S&P 500 (+8 pts to 3390) and Nasdaq Composite (+81 pts to 11210) rewrote previous record high following strong sales growth as reported by Walmart, Kohl’s and Home Depot coupled with better-than-expected July housing starts. Nevertheless, the Dow slipped 66 pts to 27778 as ongoing wrangling in Congress over further pandemic aid and concerns about how the economy will fare when an unprecedented raft of fiscal stimulus eventually burns off.

Malaysia. After an extended profit-taking consolidation on glove makers amid concerns over trading restrictions from brokers and acceleration in vaccine development coupled with rumours of a windfall tax, KLCI surged 17.1 pts to 1577.9, led by technical rebounds on Topglove and Hartalega after Top Glove and MARGMA denied being consulted by the government on the implementation of a windfall tax and MOF clarified that the government has not made a decision on whether it will impose it. Trading volume rose to 10.6bn shares worth RM6.9bn as compared to Monday’s 8.8bn shares valued at RM4.9bn whilst the broader market was firmer with 665 gainers vs 446 losers amid renewed buying optimism on ACE and lower liners after the recent selloff.

After four days of net buying, foreigners resumed selling with RM111m whilst the local retailers (RM14m) and local institutional investors (RM 97m) turned net buyers. YTD, foreigners net sold RM19.4bn shares compared with net purchases by local institutional funds (RM9.6bn) and retailers (RM9.9bn).

TECHNICAL OUTLOOK: KLCI

From a 7M peak of 1618 (28 July), KLCI plunged as much as 79 pts to 1539 (12 Aug low) before trending sideways to finish at 1577.9 yesterday. We reiterate that as long as KLCI can close above 1560 (50D SMA), chances for the benchmark to advance further in the near term to 1584 (30D SMA), 1591 (9 June high) and 1600 remain favourable, supported by the long-legged Dojis (4, 12 and 17 Aug) and upticks in technical indicators. Conversely, failure to hold at 1560 could signal further consolidation with key support platforms at 1539 and 1511 (200D SMA) levels.

MARKET OUTLOOK

We still expect KLCI to engage in a short term range bound consolidation (within 1539- 1600 range) amid domestic political uncertainty, a weak August reporting season, increasing numbers of new Covid-19 clusters, the detection of virus mutation D614G (10x more infectious) and heightened US-China geopolitical tension. However, rotational sectoral buying interests on energy, financial services, healthcare, technology, ACE companies will continue to keep overall trading volume buoyant after the last few days of broad-based consolidation.

On stock selection, we expect pure upstream plantation company like TSH (RM0.99, BUY, RM1.12 TP) will likely report better YoY performances in their upcoming quarterly financial results, due to higher FFB production and CPO selling prices. Future prospect is positive, supported by decent FFB output growth for the next few years underpinned by the young age profile at its Indonesia operations. Currently, the stock is trading at undemanding 1.09x P/B, a huge 39% discount to its 10Y P/B of 1.8x.

Technically, TSH’s long term uptrend is intact as share prices continue to stay above the support trend line (near RM0.97) after sliding 16.8% from the peak at RM1.19 (27 July). A successful breakout above 200D SMA or RM1.02 will likely to spur prices higher towards RM1.07 (50% FR) and our LT objective of RM1.15 (upper channel). Supports are pegged at RM0.97 (30D SMA) and RM0.95 (38.2% FR). Cut loss at RM0.94.

Source: Hong Leong Investment Bank Research - 19 Aug 2020