- Market Daily Report: KLCI falls with Asian shares as Trump talk hits sentiment
- Market Daily Report: FBM KLCI up on crude oil as U.S. shares recover
- Market Daily Report: KLCI falls 7.78pts as UK blast hits sentiment
- Market Daily Report: FBM KLCI down with S&P 500 mini futures
- Market Daily Report: KLCI rises with Asian markets after Macron win
Tuesday, January 31, 2017
KUALA LUMPUR (Jan 31): The FBM KLCI slipped 14.82 points or 0.88% today amid sluggish trade a day before the Federal Territories Day tomorrow, right after the Chinese New Year weekend.
The KLCI ended at 1,671.54 points, dragged down by stocks such as Tenaga Nasional Bhd, British American Tobacco (Malaysia) Bhd (BAT) and Telekom Malaysia Bhd.
Mercury Securities Sdn Bhd research head Edmund Tham said trading activity was passive as there was no catalytic news flow amid uncertainties in the market.
"It is slightly down when people are not around. The volume is low because of the holiday session," he said when contacted by theedgemarkets.com.
At market close, there were 367 decliners versus 354 advancers and 327 counters were unchanged. Across Bursa Malaysia, a total of 1.16 billion shares worth RM1.61 billion were traded.
The top gainer was United Plantations Bhd while BAT led the decliners list. The most actively-traded counter was AirAsia Bhd.
Across Asia, Japan's Nikkei 225 fell 1.69%, and South Korea's Kospi slipped 0.77%.
The ringgit, meanwhile, strengthened to 4.4285 against the greenback at 5pm.
Reuters reported that Japan's Nikkei share average posted the biggest daily decline since November on Tuesday as uncertainty over US President Donald Trump's policies weighed on investor sentiment.
The Nikkei fell 1.7% to 19,041.34 points, the biggest daily percentage drop since Nov 9 last year, after Trump was elected as US president.
Global stocks registered their biggest loss in six weeks after Trump signed an executive order on Friday to ban travel to the US from seven Muslim-majority countries, including legal residents and visa holders, and temporarily halted the entry of refugees.
Over the weekend, thousands of people rallied in major US cities and at airports in protest.
Traders said investors unloaded risky assets by selling both cash stocks and futures. They were also disappointed by weak earnings from some companies.
Source: The Edge
Thursday, January 26, 2017
KUALA LUMPUR (Jan 26): The FBM KLCI rose 8.29 points or 0.5% to its intraday high today, after the U.S.' Dow Jones Industrial Average breached the 20,000 level for first time, amid crude oil price gains.
At 5pm, the KLCI settled at 1,692.22 points, following a hike in the final trading minutes on late buying of KLCI-linked Sime Darby Bhd shares.
Sime Darby shares rose 12 sen to RM8.82 to become Bursa Malaysia's ninth-largest gainer. Across Bursa Malaysia, 1.41 billion shares, worth RM1.76 billion, were traded. There were 432 gainers versus 308 decliners.
Mercury Securities Sdn Bhd research head Edmund Tham told theedgemarkets.com that the KLCI’s performance this week did not reflect the actual local market position.
“We can notice that volume is not so good throughout this week, ahead of the long holiday. For Thursday as an example, the market mostly followed the external markets’ trend. Perhaps we can have a clearer picture of the market, after Chinese New Year,” he said.
Overnight, the Dow Jones Industrial Average climbed 155.80 points or 0.78% to close at 20,068.51 points. Today, such sentiment had contributed to Asian share gains.
Japan’s Nikkei 225 climbed 1.81%, while Hong Kong’s Hang Seng rose 1.41%.
Reuters reported Asian stocks rose to 3-1/2-month highs on Thursday, cheered by the Dow Jones Industrial Average breaching the 20,000-level for the first time, though concerns about U.S. President Donald Trump's protectionist stance kept the dollar on the defensive.
Oil prices rose on Thursday, driven up by a weakening dollar, but gains were capped by plentiful supplies and inventories, despite an effort by OPEC and other producers to cut output and prop the market up. Brent crude futures were trading at US$55.56 per barrel at 0801 GMT, up 48 cents or 0.87% from their last close.
Source: The Edge
Tuesday, January 24, 2017
KUALA LUMPUR (Jan 24): The FBM KLCI climbed 9.38 points or 0.6% on a stronger ringgit against a weakening U.S. dollar, amid higher crude oil prices.
At 5pm, the KLCI closed at its intraday high at 1,680.69 points. The ringgit strengthened to 4.4353 against the U.S. dollar at 5:36pm.
Reuters reported the dollar struggled in Asia on Tuesday, as U.S. President Donald Trump's focus on protectionism ahead of fiscal stimulus, fuelled suspicions his administration might be content to gain a competitive advantage through a weaker currency.
It was reported oil prices rose on Tuesday, on evidence the global market was tightening, as lower production by the Organization of the Petroleum Exporting Countries (OPEC) and other exporters drained stocks, although an increase in drilling in the U.S. could keep a lid on prices. Benchmark Brent crude was up 40 cents at US$55.63 a barrel by 0840 GMT. U.S. light crude was 40 cents higher at to US$53.15.
In Malaysia, Malacca Securities Sdn Bhd analyst Kenneth Leong told theedgemarkets.com that recent developments relating to OPEC’s oil production cut agreement, along with the impact of a weakening U.S. dollar, were largely encouraging for the local market.
Leong also noted gains in banking shares like CIMB Group Holdings Bhd. CIMB added four sen to RM4.92 to become Bursa Malaysia's fourth most-active stock.
“We can see that there is buying support in both selective and heavyweight banking index," he said.
Across Bursa Malaysia, 1.56 billion shares, worth RM2.03 billion, were traded. There were 416 gainers and 353 decliners.
Source: The Edge
Monday, January 23, 2017
KUALA LUMPUR (Jan 23): The FBM KLCI closed 0.39% higher today on the back of better liquidity and a weaker US dollar.
The benchmark index rose 6.42 points to close at 1,671.31.
"The main factor for KLCI to perform well is improved liquidity. The local market seems to be moving in alternate directions for some time now, but generally it is quite bullish," said Interpacific Research's head of research Pong Teng Siew.
"Volumes have improved, the banks are lending more, and money supply has moved away from the contraction phase. I am quite optimistic that it will continue to perform well in the first half of 2017," Pong said when contacted by theedgemarkets.com.
"However, a better liquidity may signal the arrival of general election. We may see interference if there is a sudden announcement on election date," added Pong.
A total of 1.53 billion shares worth RM1.81 billion changed hands. Decliners led gainers by 467 to 322, while 358 counters closed unchanged.
The US dollar traded weaker today, as President Donald Trump's "buy American, hire American" inauguration speech shed little light on his actual plans to boost the country's economy.
The ringgit continued its positive rally, reaching 4.4385 against the greenback at 5pm. However, it traded lower against other major currencies such as the pound and the yen.
In other Asian markets, Japan's Nikkei 225 lost 1.29% amid the strengthening of the yen against the US dollar.
Elsewhere, Hong Kong's Hang Seng closed 0.06% higher, and South Korea's Kospi gained 0.02%.
Reuters noted that despite the US dollar's decline, Trump's reaffirmed protectionist outlook resulted in US stocks rising. It is the first time in over 50 years that a new US president has been welcomed by a rising equity market on his first day in office, said the new agency .
Source: The Edge
Wednesday, January 18, 2017
KUALA LUMPUR (Jan 18): The FBM KLCI rose 1.99 points or 0.1% while the ringgit strengthened, after U.S. President-elect Donald Trump said the U.S. dollar's strength against the yuan did not bode well for the U.S. economy.
The KLCI closed at 1,665.02 points, as Asian share markets rose. Japan's Nikkei 225 increased 0.43%, while Hong Kong's Hang Seng rose 1.13%.
In Malaysia, Malacca Securities Sdn Bhd analyst Kenneth Leong told theedgemarkets.com that the KLCI's rise was due to the stronger ringgit against the U.S. dollar today. At 4:48pm, the ringgit strengthened to 4.4443 against the U.S. dollar.
“The KLCI is also up in tandem with regional markets," Leong said.
Bursa Malaysia saw 1.88 billion shares, worth RM1.64 billion traded. There were 431 gainers and 366 decliners.
World markets took the cue from Trump's U.S. dollar comment. Reuters reported the dollar's recent weakness deepened, after Trump said the greenback's strength against the Chinese yuan "is killing us".
It was reported Asian stock markets stabilised near three-month highs on Wednesday, helped by Hong Kong and Chinese shares, as investors judged Trump's concerns over a stronger dollar to be beneficial to some of the regional bourses.
Tuesday, January 17, 2017
KUALA LUMPUR (Jan 17): The FBM KLCI rose 4.19 points or 0.3% on bargain hunting, after the index's 13.66-point drop yesterday. The KLCI fell yesterday on renewed concerns on the UK's planned exit from the European Union (EU) and after China shares dropped sharply.
The UK's planned exit from the EU is popularly known as Brexit. The KLCI also dropped on news JP Morgan downgraded the Malaysian stock market to "neutral", from "overweight".
Today, the KLCI closed at 1,663.03 points. Inter-Pacific Research Sdn Bhd research head Pong Teng Siew told theedgemarkets.com that the KLCI's decline yesterday was an opportunity for bargain hunting by institutional investors.
“The underlying sentiment is still bullish. Liquidity will improve, but I don’t think it will last past late February or March. The market is cautious,” Pong said.
Today, Bursa Malaysia saw 1.99 billion shares, worth RM1.68 billion, traded. There were 411 gainers and 366 decliners.
World markets have been taking cue from Brexit concerns. Reuters reported the pound hovered near three-month lows versus the dollar on Tuesday, and stocks were mostly weaker as investors waited for British Prime Minister Theresa May to lay out plans to exit the EU, amid fears Britain will lose access to the single market.
Safe-havens such as the yen, gold and treasuries, gained in turn.
Source: The Edge
Monday, January 16, 2017
KUALA LUMPUR (Jan 16): The FBM KLCI fell 13.66 points or 0.8% on renewed concerns over the UK's planned exit from the European Union (EU) and after China's Shenzhen Stock Exchange Composite fell as much as 6.1% in intraday trade.
The UK's planned exit from the EU is popularly known as Brexit.
In Malaysia, the KLCI closed at its intraday low at 1,658.84 points. Bursa Malaysia saw 1.79 billion shares, worth RM1.61 billion, traded. There were 225 gainers and 611 decliners.
The KLCI fell with Asian share markets. In China, the Shenzhen Stock Exchange Composite pared losses to close 3.62% lower, while Hong Kong's Hang Seng fell 0.96%. Elsewhere, Japan's Nikkei 225 declined 1%.
Reuters reported the sterling slid to three-month lows in Asia on Monday, with investors spooked anew by concerns over Britain's divorce from the EU, while US policy uncertainty lingered ahead of President-elect Donald Trump's inauguration.
Meanwhile, Bloomberg reported the Shenzhen Stock Exchange Composite sank as much as 6.1%, the biggest loss since Feb 29. Traders pointed to concern that regulators will accelerate the pace of initial public offerings, already at a 19-year high, diverting liquidity from existing shares.
In Malaysia, Areca Capital Sdn Bhd chief executive officer Danny Wong told theedgemarkets.com that the KLCI was ripe for profit taking, following recent steady gains.
“For the past two weeks, the market has been steadily moving upwards. Since last year, the market has been up about 30 points,” Wong said.
Source: The Edge
Thursday, January 12, 2017
KUALA LUMPUR (Jan 12): The FBM KLCI extended gains today, rising 2.55 points or 0.2%, as the ringgit strengthened slightly against the U.S. dollar.
The KLCI closed at 1,677.76, with gains in counters such as British American Tobacco (M) Bhd and Genting Bhd lending support to the index's advance. The ringgit strengthened to 4.4583 against the U.S. dollar in late afternoon trading, compared with yesterday’s close of 4.4722.
Across Asia, Hong Kong's Hang Seng fell 0.46%; Japan's Nikkei 225 declined 0.58%; while South Korea's Kospi gained 0.58%.
Reuters reported the U.S. dollar nursed widespread losses today, after President-elect Donald Trump's long-awaited news briefing provided scant clarity on future fiscal policies, disappointing bulls wagering on major stimulus.
Yet, neither did Trump mention possible tariffs against Chinese exports — a relief for Asian share markets that have feared the outbreak of a global trade war.
Etiqa Insurance and Takaful Bhd head of research Chris Eng said the KLCI has beefed up as expected, with positive sentiment seen, following the ringgit’s rise against the greenback.
“Ringgit has strengthened slightly. The KLCI is expected to continue trend higher, mildly moving forward," he told theedgemarkets.com via telephone.
A total of 2.54 billion shares, worth RM2.19 billion, were traded on Bursa Malaysia today. Gainers outnumbered decliners by 539 to 298.
BAT was top gainer, while Time dotCom Bhd was the leading decliner.
IFCA MSC Bhd was the most actively-traded stock on continued strong interest. The company had said it is unaware of reasons for the recent sharp rise in its share price and volume, in response to an unusual market query (UMA) by Bursa Malaysia.
Source: The Edge
Wednesday, January 11, 2017
KUALA LUMPUR (Jan 11): The FBM KLCI rose 3.16 points or 0.2% with Asian shares, as investors waited for US President-elect Donald Trump's press conference later today.
Trump's press conference is closely watched for clues on the U.S.' policies, when he becomes president. Trump's inauguration will be held this Jan 20.
At Bursa Malaysia today, the KLCI closed at 1,675.21 points lifted by stocks like Tenaga Nasional Bhd, which added 20 sen to RM14. KLCI entity Tenaga was Bursa Malaysia's fourth-largest gainer.
Bursa Malaysia saw 2.76 billion shares, worth RM2.02 billion traded. There were 467 gainers against 324 decliners.
Fund managers said they were mindful on the sustainability of Malaysian share gains, as trade volume was expected to drop due to the Chinese New Year, which falls on Jan 28 this year.
“There is some recovery in the Malaysian market. But it is still unknown whether the recovery is sustainable. In the coming weeks, the trading volume is expected to fall due to Chinese New Year,” Areca Capital Sdn Bhd chief executive officer Danny Wong Teck Meng told theedgemarkets.com.
Asian shares rose. Japan’s Nikkei 225 gained 0.33%, while Hong Kong's Hang Seng rose 0.84%.
Reuters reported Asian shares rose to two-month highs on Wednesday, as investors looked to Trump's news conference later in the day for clues on his policies on taxes, fiscal spending, international trade and currencies.
"There are underlying expectations that Trump's tax cuts and infrastructure spending will boost the U.S. economy, which should support markets," Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management was quoted as saying.
Tuesday, January 10, 2017
The FBM KLCI index gained 4.15 points or 0.25% on Tuesday. The Finance Index increased 0.50% to 14696.66 points, the Properties Index up 0.69% to 1159.57 points and the Plantation Index rose 0.10% to 7900 points. The market traded within a range of 7.63 points between an intra-day high of 1673.57 and a low of 1665.94 during the session.
Actively traded stocks include SUMATEC, HOVID, IFCAMSC, REACH-WA, HIBISCS, VIZIONE-OR, GPACKET, SUMATEC-WB, BIOHLDG-WA and SCOMI. Trading volume increased to 2683.74 mil shares worth RM2107.28 mil as compared to Monday’s 1804.35 mil shares worth RM1452.13 mil.
Leading Movers were MAXIS (+17 sen to RM6.18), GENM (+10 sen to RM4.85), BAT (+86 sen to RM46.28), PPB (+30 sen to RM16.38) and HAPSENG (+15 sen to RM9.00). Lagging Movers were PETGAS (-42 sen to RM20.98), TENAGA (-12 sen to RM13.80), ASTRO (-2 sen to RM2.70), YTL (-1 sen to RM1.52) and PETCHEM (-3 sen to RM7.17). Market breadth was positive with 414 gainers as compared to 368 losers.
The KLCI closed higher with last minute spike before the closing bell rang at 1672.05 points amid overnight mixed performance in US market. The performance of our local bourse was lifted by buying interest in heavy weight counters such as Maxis, Genting Malaysia and Genting Berhd.
Retain OUTPERFORM with an unchanged target price (TP) of RM1.90
SapuraKencana Petroleum’s (SAKP) wholly-owned subsidiaries have been awarded a combined value of c.USD300m (c.RM1.3bn) worth of contracts. The awards are for the engineering and construction (E&C) and drilling divisions. The Group’s orderbook wins to-date stands at RM5.5bn for FY17F. We continue to maintain our estimates however due to these new contracts being part of the replenishment for FY18 onwards, coupled with the nature of the contracts in which revenue is recognised on a progress billing cycle or call-out basis for instance. Our Outperform view on SAKP is nonetheless reaffirmed with an unchanged TP of RM1.90 based on our blended SOP valuation.
- PETRONAS Carigali Sdn. Bhd (PCSB) award. For a duration of 2 years and to be performed on a call-out basis, the Group secured a contract for the provision of underwater services located at the offshore waters of Peninsular Malaysia. The job scope comprises of underwater services with vessels, air and saturation diving, remotely operated vehicle (ROV) and other related underwater services, including inspection, maintenance and repair to support PCSB’s underwater facilities.
- Another PCSB contract. Awarded to SapuraKencana GeoSciences Sdn. Bhd. for the provision of soil investigation services at both Peninsular Malaysia and Sarawak/Sabah operation areas, the contract is for a duration of 1 year with an optional extension for another 1 year.
- Hyundai Heavy Industries award is for the provision of offshore installation work of CPP Jacket and Bridge for BARDEGG-2 and Baronia Enhanced Oil Recovery (EOR) Development Project. Awarded to SapuraKencana TL Offshore Sdn. Bhd. (SKTLO), the contract is scheduled to commence in Q1 2017 in East Malaysia.
- Repsol contract. The award is for the provision of transportation and installation of pipeline, substructure and topside for Bunga Pakma Development Project by Repsol Oil & Gas Malaysia Limited (formerly known as Talisman Malaysia Limited). Awarded to SKTLO, the contract is for a duration of 12 months, comprising of transportation and installation of Bunga Pakma, a wellhead riser platform which includes jacket, piles, topside, wet gas pipeline and subsea composite cable.
- SKD Alliance contract. For a duration of 5 years firm with an optional extension for an additional 5 years and scheduled to commence in April 2018, the contract is by Brunei Shell Petroleum Sdn. Bhd. for the provision of the SKD Alliance Tender Assist Drilling Rig awarded to SapuraKencana Drilling Sdn. Bhd.
Source: PublicInvest Research - 10 January 2017
Thursday, January 5, 2017
KUALA LUMPUR (Jan 5): The FBM KLCI gained 12.35 points or 0.7% with Asian shares after the U.S. Federal Reserve's latest meeting minutes indicated faster U.S. economic growth, when Donald Trump becomes president.
Trump's inauguration as U.S. President will be held this Jan 20. Trump's election win has led to anticipation of higher U.S. inflation, due to his planned expansionary fiscal policies.
At Bursa Malaysia today, the KLCI closed at its intraday high at 1,659.82 points. Bursa Malaysia saw 2.51 billion shares, worth RM1.85 billion traded.
Elsewhere, Hong Kong's Hang Seng gained 1.46%.
Reuters reported minutes from the Federal Reserve's December meeting showed almost all Fed policymakers thought the U.S. economy could grow more quickly, after Trump becomes president.
In Malaysia, JF Apex Securities Bhd senior analyst Lee Cherng Wee told theedgemarkets.com that from a technical viewpoint, the KLCI had broken away from its downtrend.
“Current resistance level would be 1,660 points. The index’s movement will depend on whether it can break this level," Lee said.
Source: The Edge
Retain NEUTRAL with a higher target price (TP) of RM24.90
We had a meeting with Kuala Lumpur Kepong (KLK)’s management recently and came away with a steady view on the company’s outlook. Despite seeing strong CPO price performance, we think current valuation remains unattractive at 23x forward PER. Hence, we maintain our Neutral call but with a higher TP of RM24.90 (up from RM23.46) after rolling over our valuations to FY18.
- A rebound in FFB production. After experiencing an 8.1% drop in FY16 FFB production, the company expects to see a recovery in FY17 with a 3-5% growth. The growth will mainly come from Kalimantan Tengah, which has seen a dip for 2 consecutive years. Malaysian production may be struggling to see a recovery due to a lagged effect of El Nino’s impact last year.
- Targeting a steady production cost. Despite expecting an increase in fertiliser and labour expenses, the company targets to keep its production cost (excluding palm kernel credit and milling costs) at RM1,350/mt in FY17, supported by a recovery in FFB production.
- Expecting additional 6,000ha mature area. It is expected to see an additional 6,000ha mature area this year. Meanwhile, it expects to replant 3,000-4,000ha in Sabah and plans to plant about 1,000- 1,500ha in Liberia. In Indonesia, the group plans to help expand the plasma planted area while no new planting to be carried out for its own area due to high carbon stock studies.
- Allocating lower capex. The Group has allocated a total capex of RM850m for FY17, down by 7% YoY. About RM500m will be used for new planting expenditure while the remainder will go to maintenance capex for oleochemical business.
- Mixed fortune for the respective downstream businesses. Specialty oils & fats will see stronger contribution, riding on the tight RSPO oil supplies, which entitle them to more lucrative premium of USD90/mt compared to USD50/mt in the past. On the other hand, oleochemical will continuously face stiff competition from petrochemical though crude oil prices have seen a strong rebound lately. In addition, it will also experience heightening raw material cost due to escalating PKO prices.
- Property could see a turnaround in 2018. Property unit plans to roll out some small launches soon. With the commencement of MRT Line 1, we believe it will augur well for its property sales given the accessibility to public transportation. Nevertheless, management expects the property demand to pick up in 2018, which will see a turnaround for its property arm.
Source: PublicInvest Research - 05 January 2017
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Retain HOLD with higher target price (TP) of RM0.91
- UMW-OG has received a conditional Letter of Award from PETRONAS Carigali Sdn Bhd ("PCSB") for a contract for the Provision of Jack Up Drilling Rig Services for PCSB (“Contract”).
- The Contract is for the provision of Drilling Rig Services for PCSB, whereby UMW-OG Group will assign its UMW NAGA 7 for this contract. The Contract is for duration of up to eighteen (18) months.
- UMW NAGA 7 is a premium independent-leg cantilever jack- up rig that has a drilling depth capability of 30,000 feet and has a rated operating water depth of 375 feet. Financial Impact
- This contract win is positive surprise to us as we did not expect 3 rigs (Naga 6, 7 & 8) to be locked in for whole year of 2017.
- Expected charter rate for Naga 7 in this contract to be circa US$100,000/day, given its just 2 year old coupled with higher specifications. P&L breakeven of this rig would require at least 70% utilisation rate.
- Post this contract win, UMWOG will have at least 3 working rigs in the whole year of 2017 with one more (Naga 2) working in 2Q17, implying that close to 50% of the total fleet would be working in 2017, higher utilisation than 36% expected utilisation of rig fleet in 2016.
- The group’s earnings outlook in 2017 remains bleak. Prospects of securing new rig contract in 2017, however, has improved due to expected recovery of oil prices in 2017 post OPEC’s commitment for production cut.
- In the current oversupplied local jack up rig market, we opine that charter rates and utilisation rates could remain low (US$70,000-100,000/day) in the near term until drilling activities pick up more significantly.
- Raised FY17/18 forecast to -RM191m loss)/+RM42m profit) (from -RM236m loss)/+RM24m profit) to account for higher overall rig utilisation rate upon better expected demand for rigs.
- While overall prospects for rig market has improved upon bottoming of oil prices, company specific risks (i.e. high short term debt obligation) are still present.
- TP is raised to RM0.91 as we raised target FY17 PBV multiple to 0.7x from 0.5x previously to account for the positive market sentiment.
Source: Hong Leong Investment Bank Research - 05 January 2017
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Wednesday, January 4, 2017
KUALA LUMPUR (Jan 4): The FBM KLCI rose 11.94 points or 0.7% as Japan shares rose substantially on a weaker yen.
At Bursa Malaysia, the KLCI settled at 1,647.47 points on gains in stocks like Sime Darby Bhd and Petronas Chemicals Group Bhd. Bursa Malaysia saw 1.98 billion shares, worth RM1.65 billion traded.
Japan's Nikkei 225 rose 2.51% as a weaker yen led to expectation of higher earnings for exporters. Reuters reported Japan's Nikkei share average started 2017 trading on a strong note on Wednesday, as investors cheered upbeat global economic data released during Japan's holidays, and a weaker yen boosted exporters.
In Malaysia, Malacca Securities Sdn Bhd senior research executive Kenneth Leong told theedgemarkets.com that the KLCI's movement today was in line with key regional indices.
Leong said "there is still upside in the KLCI, premised on higher crude palm oil (CPO) and crude oil prices”.
Such CPO price sentiment followed the ringgit's depreciation today to a fresh one-year level against the U.S. dollar at 4.5002. At 5:27pm, the ringgit was traded at 4.4975 against the U.S. dollar.
A weaker ringgit makes Malaysian CPO more competitive in world markets, hence anticipation of higher demand for the commodity.
Source: The Edge
Trading BUY with a target price (TP) of RM0.83
- Now an O&G Junior. Upon getting vote acceptance for QA on 16th Nov 2016, Reach will now become a full-fledged oil junior with final adjusted Purchase Consideration worth US$175.9m. Acquisition has been completed on 27th November 2016 with dissenting shareholders already being repaid.
- Emir-oil a balanced portfolio with high quality crude. Situated in Kazakhstan, currently Emir-oil possesses 4 producing fields coupled with 2 development fields and 6 drillable prospects, pointing to high potential growth in pipeline of reserves. In addition, it also produces high value light and sweet crude oil and possesses high condensate yield in one of its producing fields, indicating more room to further monetize the acquired asset.
- Oil asset was bought at low. While the oil market has been subdued for a long time, we believe the upstream asset acquired by Reach was at the lowest price possible. The acquisition price was determined on 4th March 2016 when Brent was at US$37/bbl, not far off from its multiyear low of US$27/bbl. This shows that Reach would be able to reap full benefit of long term oil price recovery with minimal downsides. Current Brent price is at US$57.5/bbl.
- Building CPF to unlock oilfield potential. MIEH (vendor for the QA) has already invested in a Central Processing Facility (CPF). Phase 1 is expected to be completed in several months time and upon completion of the pipelines in 2018, Reach could easily double its oil production to more than 10,000 bbls/day by executing more well completion and drilling more wells in its proven areas. Phase 2 would again bring its oil production to level in excess of 20,000bbls/day upon completion, indicating vast opportunity to reap more value from its oil reserves.
- Market ‘under pricing’ its long term prospects. At the current share price of RM0.66, market seems to have only price in long term oil price of US$67/bbl (for 20-year time frame) - based on our backward calculation of assuming other variables being constant. We are of the view that oil prices would eventually recover to US$57/bbl beyond the implied level as oil market rebalances while cost of oil production is expected to rise in the long run.
- Direct beneficiary of oil price rally.
- Entering into production asset early stage providing more upside possibility.
- Oil production natural decline, oilfield operational risk, country risk.
- Minimal downside risk at this price point while the company is expected to escalate to the next level by tapping into the reserves of a young oilfield with limited risk of straining balance sheet.
- Our discounted FCFE (10% discount rate) approach has yielded a TP of RM0.83 at fully diluted level (assuming dilution from potential placement and full exercise of warrants). Near term exercise of warrants is unlikely as the expiry date has been extended for another 5 years to 2022 post acceptance of QA by its shareholders. To illustrate, excluding dilution impact from warrants, our TP would be at RM0.91.
Source: Hong Leong Investment Bank Research - 04 January 2017
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Trading BUY with a target price (TP) of RM1.52
We believe PRTASCO is an undervalued gem, especially for its niche business specialising in roadwork maintenance, which provides a steady income stream, as most of its maintenance works are based on concessions awarded by state and federal governments. Projecting steady earnings growth of 13-3% for FY17-18E backed by both its existing and maintenance orderbooks, and we also like them for their decent dividend yield of 6.1% for FY17. TRADING BUY with a TP of RM1.52 based on 11x FY17E PER.
Contractor with a niche. PRTASCO is a well-established player in the construction industry where its forte is in road maintenance works on top of several business divisions (refer to business segments). Its road maintenance division made up 52% and 69% of FY15 revenue and PBT, respectively; while pre-tax margins are superior at an average of 10-13% compared to the conventional construction pre-tax margin that averages around 6% (refer to overleaf for details).
Gunning for more maintenance concessions. As of 9M16, PRTASCO has an outstanding maintenance orderbook of c.RM4.4b that would last until 2026 contributing c.RM400m p.a. to its top line. These maintenance orderbook comprise concessions awarded by both states and federal governments to carry out routine and periodic road maintenance work over the awarded concession period. Looking forward, management indicate that their core focus is still road maintenance works, and they are eyeing more sizeable concessions, which could potentially contribute another c.RM100.0m-RM200.0m p.a. to its top line. That aside, they are currently bidding for c.RM300.0m worth of state, rural and municipal road maintenance contracts.
A bite size replenishment target. For its construction division, management is targeting a replenishment of RM500.0m for FY17 that comprises infrastructure and government housing projects such as PPA1M. We believe that management’s target is not overly ambitious and is highly achievable given its tender book size of c.RM5.0b. Furthermore, PRTASCO have a strong track record with PPA1M project, in which they have thus far bagged two phases of PPA1M with a cumulative value of c.RM900.0m.
Decent dividend pay-out ratio. Over the past 5 years, PRTASCO had been consistently paying out >60% of its net profit as dividends, albeit not having a formal dividend policy. We note that it is at the higher end in terms of pay-out among contractors. At our conservative dividend payout ratio (DPR) assumption of 50%, we would be expecting DPS of 6.9 sen for FY17, which translates to a yield of 6.1% - far superior compared to its small-mid cap peers’ (KERJAYA, MITRA, GADANG) average of 2.9%. While net gearing may seem high at 1.2x as of 9M16, this is due to the project financing for Phase 1 of PPA1M of which management is expecting a bullet repayment of c.RM525m from the Government upon completion.
Growth to resume. 9M16 NP declined by 10% as its pre-tax margin was compressed by 3ppt to 9% due to non-renewal of two state road maintenance contracts during the year. We are projecting net profit growth of 13-3% for FY17-18E Our FY17-18E growth of 13-3% is backed by: (i) its outstanding orderbook of c.RM742.0m with replenishment assumptions of RM500.0m per annum for FY17-18E, (ii) outstanding maintenance orderbook of RM4.4b that would last them for another 10 years, and (iii) property unbilled sales and inventories worth RM113m, while growth assumptions for other divisions are flattish.
Trading Buy. We value PRTASCO at RM1.52 based on 11x FY17E PER that is within our mid-cap peers’ range of 11x-13x. We see room for upgrade in valuations should PRTASCO be able to pare down its debts upon receiving the bullet repayment for its PPA1M project by end of 1H17, which would bring its net gearing into net cash. Furthermore, the potential re-rating catalyst for PRTASCO would be: (i) higher-thanexpected replenishments >RM500.0m, (ii) potential extra emergency road maintenance works to be carried out should GE14 is called in 2017. Currently, its dividend yield of 6.1% is still far more superior compared to its mid-cap peers’ average of 2.9%.
Source: Kenanga Research - 04 January 2017
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Upgrade to OUTPERFORM with higher target price (TP) of RM5.00 from RM4.60
We met with Genting Malaysia’s (GENM) management recently. We are optimistic that the progressive completion of the Genting Integrated Tourism Plan (GITP) project would help to boost visitor arrivals, leading to higher earnings growth going forward. Meanwhile, its UK operations have turned around after adopting a new strategy to focus on the premium mass market. We raise our FY17-18F earnings forecasts by 12-13%, supported by higher visitor growth of 9-10% p.a at Genting Highlands. As a result, our SOTP-based TP is revised up to RM5.00 (RM4.60 previously). We upgrade the stock from Neutral to Outperform.
- GITP progressing well. The new Awana SkyWay is fully operational since two weeks ago. With 4,500 parking bays at the Awana SkyWay Car Park, visitors could now cut short travelling time up to the peak. The Sky Avenue’s F&B and retail outlets are also opened for public but the premium outlets are only available by 1Q17. Similarly, new gaming areas will only be operational by 1Q17. Meanwhile, Phase 1 of 20th Century Fox World theme park is scheduled to open in 4Q17. Given the successful opening of the new cable car service, F&B and retail outlets, we believe visitor arrivals will pick up in 4Q16. Coupled with the weakening of the ringgit, locals should be less inclined to make overseas travels during the festive season while it may also attract Singaporean tourists to visit Genting Highlands. Of the RM8.1bn project cost for GITP Phase 1, GENM has spent only RM3.7bn thus far. Capex for 2017 is expected to rise and we understand that the group has locked in its USD cost at rates lower than the prevailing levels.
- UK benefitting from new marketing strategy. After adopting a new marketing strategy which allows premium masses to visit its four VIP clubs, its UK casino business has turned around since 4Q15. This was supported by higher bad debt recovery and improvement in win rate (although volume is lower, premium mass generally gives higher win rate). Meanwhile, losses at Birmingham have narrowed and operations are expected to stabilize in 2H17.
- Upgrade to Outperform. We are revising up our FY17-18F earnings forecasts by 12-13% after factoring in higher visitor arrivals at Genting Highlands on the back of a progressive completion of the GITP project. As such, our SOTP-based TP is raised from RM4.60 to RM5.00. Key risk - GENM has invested USD250m of promissory notes issued by the Mashpee Wampanoag Tribal Gaming Authority for the initial development phase of an integrated resort in Massachusetts. We understand there is now an on-going dispute between the tribe and local government. If the issue is not resolved and the project fails to take off, we see the risk of GENM making provisions for this investment in the future.
Source: PublicInvest Research - 04 January 2017
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Maintain OUTPERFORM with target price (TP) of RM1.00
Wah Seong has announced that its wholly-owned subsidiary, Syn Tai Hung Trading Sdn Bhd (STHT) has signed a JV agreement with Lesso Home Service Holdings Limited (LESSO) to carry out an integrated sales and service center business to provide quality imported products and home furnishing goods, facilitated by LESSO on-line e-commerce platform. We understand that this strategy supports STHT’s distribution network in Malaysia, while leveraging on LESSOs’ extensive supply chain network in China to expand its business of distribution of building materials, architectural products, and home furnishing goods. We cannot ascertain earnings contributions from this JV as yet, pending further information. Our Outperform view on Wah Seong is maintained based on its current fundamental strengths, with a TP of RM1.00 pegged to 8x PE and FY17F EPS of 12.5sen.
- LESSO is an indirect wholly-owned subsidiary of China Lesso Group Holdings Limited, involved in the business of manufacturing and trading of building materials and interior decoration products. Through the intended JV company Lesso Home Syn Tai Hung Sdn Bhd, Wah Seong via STHT will own 49% of the JV.
- The rationale. The JV will pave the way for Wah Seong to expand its business of distribution of building materials, architectural products, and home furnishing goods by capitalizing on the extensive supply chain network of LESSO in China and the established distribution network of STHT in Malaysia. Management has expressed that the expansion is also in line with the “One Belt One Road” initiative of China and the growing Chinese investments in Malaysia.
- Retain Outperform. We continue to recommend Wah Seong with a TP of RM1.00 pegged to 8x PE and FY17F EPS of 12.5sen. The stock has limited downside as the Group’s performance should be boosted by the higher, stable oil price levels which is expected to encourage new projects, coupled with its execution capabilities supported by its current RM3.6bn orderbook as at 3QFY16.
Source: PublicInvest Research - 04 January 2017
Tuesday, January 3, 2017
KUALA LUMPUR (Jan 3): The FBM KLCI fell 6.2 points or 0.4% as investors took profit in stocks like Axiata Group Bhd and Malayan Banking Bhd (Maybank), following 2016 year-end window-dressing gains.
At 5pm today, the KLCI closed at 1,635.53 points. Axiata dropped 20 sen to RM4.52, while Maybank fell 19 sen to RM8.01.
KLCI-linked Axiata and Maybank were Bursa Malaysia's seventh and eighth-largest decliners, respectively. Across Bursa Malaysia, 1.67 billion shares worth RM1.07 billion were exchanged.
“The KLCI is seeing a correction after last week’s window-dressing gains," Areca Capital Sdn Bhd chief executive officer Danny Wong told theedgemarkets.com.
"Blue-chip counters like Maybank and Axiata were pushed at the last minute last week, so now, it’s coming back down again,” Wong said.
In currency markets today, the ringgit weakened to a fresh one-year level against a strengthening U.S. dollar at 4.4940. At 4:54pm, the exchange rate stood at 4.4938.
The ringgit is contending against a strengthening U.S. dollar, in anticipation of U.S. interest rate hikes in 2017.
In Malaysia, Wong said the exchange rate was stabilising at between 4.4800 and 4.4900.
“The ringgit seems to be stabilising at the current level. It has decoupled from crude oil prices over the past few months and when this relationship resurfaces, the ringgit will be seen as undervalued,” he said.
Source: The Edge