MARKET REVIEW

Asia/US. MSCI All Countries Asia Pacific Index slid 0.71% to 159.64 (-1.4% WoW) as concerns over aggressive Fed hikes re-emerged, overshadowing PBOC’s cut on its 1Y lending rate by 5 bps to 3.65% and its 5Y rate by 15 bps to 4.3% to jumpstart a sluggish economy. Dow dived 643 pts to 33,063 and US 10Y bond yield soared 4 bps to 3.01%, as market participant feared that Powell’s comments may skew towards hawkish tone during his speech at the Jackson Hole central bank forum on Friday, reiterating the need for further interest rate hikes to combat inflation.

Malaysia: Tracking a rout in Asean markets, KLCI tumbled 17.1 pts at 1,487.4, recording its 4th straight decline and steepest single-session fall since 6 July, tempered by a broad selloff on 26 KLCI components eg PMETAL, CIMB, SIMEPLT, TENAGA, MAYBANK and INARI. Market breadth (gainers/losers) plunged to 0.33 from 0.93 last Friday.

TECHNICAL OUTLOOK: KLCI

Tracking the shooting star formation and worsening technical readings, we reckon that KLCI is likely to correct further after violating major 100D MA (1,517) and 1,500 psychological supports. The next crucial support is near 1,475 neckline. A decisive breakdown may trigger further decline towards 1,464 (50D MA) and 1,454 (61.8% FR) levels. Conversely, stiff hurdles are pegged at 1,500, 1,517 and 1,530 (200D MA) levels.

MARKET OUTLOOK

In sync with a resumption of selloff from Wall St and bearish KLCI technicals, KLCI may continue its downward consolidation (support: 1,454-1,464-1,475; resistance: 1,500-1,517- 1,530) as investors mull the ongoing Aug reporting season, a cautious Malaysia 4Q22 GDP outlook, timing of GE15, elevated inflation and rapid global economic slowdown.

On corporate front, FLBHD (Non-rated, TP RM2.26) and EVERGRN (BUY, TP RM0.96) reported solid 2Q22 results. FLBHD’s 2Q22 net profit of RM10.6m (QoQ: +43%, YoY: +146%) brought 1H22’s sum to RM18m (+14x, met 61% of our FY22 forecast of RM29.5m). FLBHD also declared 1/50 share dividend and 3sen interim (ex-date 14 Sep). Meanwhile, EVERGRN’s 2Q22 core net profit of RM16m (QoQ: -4.8%; YoY: 4.9x) brought 1H22’s sum to RM32.8m (YoY: +2.2x), making up 48.8% of our full -year forecast. Overall, both companies remained cautiously optimistic of a positive 2H22 outlook, riding on the continued USD strength (2Q22: RM4.35/USD vs 3QTD: RM4.45/USD) given that about 80- 90% of its revenue is in USD while most of its costs are in RM, offsetting lingering risks of fluid economy, raw materials and worker shortages.

VIRTUAL PORTFOLIO (FIG1)

In the wake of deteriorating market sentiment, we took profit on DAYANG (7.7% return) and squared off ATECH (9% loss) amid weakening technicals.

Source: Hong Leong Investment Bank Research - 23 Aug 2022