MARKET REVIEW 

Global. Asian markets ended higher, as sentiment was buoyed by the resumption of AstraZeneca’s clinical trials of its Covid-19 vaccine and a USD40bn deal as chipmaker Nvidia agreed to buy British chip-designer Arm Holdings from SoftBank. Overnight, Wall St rose amid a flurry of deal activities including reports that Oracle plans to forge a partnership with TikTok, a USD40bn deal by Nvidia to buy Arm Holdings and Gilead Sciences to acquire Immunomedics for USD21bn. Confidence was also lifted by vaccines optimism as AstraZeneca said it has resumed British clinical trials of its COVID-19 vaccine and Pfizer claimed that a coronavirus vaccine could be distributed in the U.S. before the year-end. The Dow surged 326 pts or 1.2% to 27993 whilst the Nasdaq Composite soared 203 pts or 1.7% to 11056.

Malaysia. After falling 11 pts WoW, KLCI rose 6.5 points or 0.43% at 1511.4 on Monday as news on the resumption of AstraZeneca’s clinical trials of its Covid-19 vaccine and bargain hunting on depressed rubber glove stocks spurred sentiment. Trading volume increased by 1.9bn shares to 9.6bn shares worth RM6.5bn. Market breadth was bullish with 806 gainers vs 329 losers.

Yesterday, local institutional (-RM92m) and foreign (-RM188m) investors remained the net sellers whilst local retailers (+RM280m) were the net buyers in equities. YTD, local institutional and retail investors net bought RM9.37bn and RM11.02bn equities, respectively compared with a total of RM20.39bn sold by foreign investors.

TECHNICAL OUTLOOK: KLCI

Overnight rally on Wall St and the recent rebound off the lower downtrend channel near 1487 coupled with a close above the 200D SMA (1505) may signal that a tad more upside may take place ahead of the Malaysia Day holiday tomorrow. Further resistances are situated at 1521 (23.6% FR) and 1542 (upper downtrend channel) levels whilst supports are pegged at 1505 and 1487 zones.

MARKET OUTLOOK

Led by an overnight rebound on Wall St and further vaccines optimism coupled with improving technical picture, KLCI may inch higher today ahead of the Malaysia Day holiday on 16 Sep. Nevertheless, further rally could be capped during this seasonally sluggish September outing (KLCI tumbled average 1.7% from 2000-2019) amid elevated risks due to the domestic political uncertainty (ahead of the 26 Sep Sabah state election), the expiry of 6M grace period for loan repayments (by end Sep), a review on Malaysia’s position in the World Government Bond Index (WGBI) by end Sep, concern over government’s major source of income following Petronas sluggish 1HFY20 results, worries of a Covid-19 resurgence in the fall and winter, lingering US-China tension, deadlock over additional pandemic aid in US Congress coupled with the looming US presidential election on 3 Nov. Key supports are pegged at 1474-1461-1428 whilst resistances are situated near 1521- 1542.

On stock selection, after correcting 17.6% from a 22M high of RM0.71 (3 Sep) to RM0.585 yesterday, DNONCE (Not-rated) will be attractive to bargain on any price weakness towards the 0.56 (uptrend line support) and RM0.53 (30D SMA) supports levels. To recap, DNONCE is a diversified engineering solutions provider with key customer base from: 1) Healthcare division mainly serving major glove producers based in Thailand (manufacture packaging boxes for major glove manufacturers and produce plastic products for medical use); 2) E&E division mainly serving the semiconductors and memory drive manufacturers (provide cleanroom services and box-Build assembly coupled with manufacture plastic components parts such as PCB trays/precision component tape and reels), and 3) Manufacturing division (produce industrial and carton boxes primarily for furniture, automotive and F&B industries).

In 1QFY7/21, DNONCE recorded strong earnings of RM3.8m, exceeded the 16-month full year net profit achieved in the preceding FY4/20, primarily attributed to the surge in orders for packaging solutions by the healthcare customers in tandem with the rise in demand for gloves, as well as improved operational efficiency. Overall, management is cautiously positive on its outlook, riding on twin engines of growth i.e. healthcare and E&E sectors.

The trend for the stock is up as it has formed a series of higher highs and higher low. The recent prices decline could potentially represent a buying opportunity. A successful breakout above RM0.625 (10D SMA) will spur prices higher towards RM0.71 (22M high on 3 Sep) and our LT objective of RM0.73 (upper BB) levels. Key supports are pegged at RM0.565 (20 SMA) and RM0.53 (uptrend line). Cut loss at RM0.52.

Source: Hong Leong Investment Bank Research - 15 Sept 2020