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Rakuten Trade lowers year-end forecast for FBM KLCI to 1,720 points

PETALING JAYA: Rakuten Trade has revised downwards its year-end forecast for the FBM KLCI to 1,720 points from 1,760 points previously.

“This is due to the weaker corporate earnings in the bourse and external factors,” said its head of research Kenny Yee at Rakuten’s second-half market outlook briefing today.

For 2019, it has revised the forecast for Malaysia’s corporate earnings to -0.5% from its previous expectations of 2.3% growth.

Nonetheless, Rakuten is optimistic on Malaysia’s index-linked blue-chip stocks, particularly within the banking sector due to a low prevailing foreign shareholding level of 14.9% and the fact that many are trading at reasonable levels.

At the moment, the FBM KLCI is estimated to trade at a price-to-earnings ratio of 15.5 times against a historical five-year average of 18.0 times.

During the session, Yee shared some of the research house’s top picks, including Crest Builder Holdings Bhd, Econpile Holdings Bhd, Kelington Group Bhd, MBSB Bank Bhd and Serba Dinamik Holdings Bhd.

He noted that the merger between Telenor ASA and Digi.com Bhd has proved to be a boon to the sector, which has managed to outperform the market. Once the merger is concluded, Yee expects there will be more merger & acquisition (M&A) activities in the sector.

The banking sector is also expected to see more M&As as local banks have reached their saturation point with the need to expand regionally and to counter the imminent digital banking wave.

On the currency front, Rakuten expects the ringgit to test the RM4.00 level against the US dollar by the end of the year. “This will be driven by foreign net inflows and the start of pump-priming activities in the country,” Yee explained.

The pump-priming activities will come from the resumption of East Coast Rail Link, Bandar Malaysia and infrastructure projects related to the Penang Transport Master Plan. Once these mega projects are kick-started, the market will see an inflow of foreign funds, particularly from China.

When asked whether he foresees another rate cut by Bank Negara Malaysia, Yee opined that it is not likely to happen. This, he said, is because the pump-priming activities would be a better instrument to spur the economy as the construction sector has high spillover effects that would be more effective than an interest rate cut.


Bursa: Healthy IPO pipeline in the second half of the year

KUALA LUMPUR: Bursa Malaysia Bhd expects strong listing activity in the second half of the year with 13 initial public offerings (IPOs), according to its CEO, Datuk Muhamad Umar Swift (pix).

“We have a healthy pipeline of 13 companies to be listed in the second half of the year with an estimated market capitalisation of RM15 billion,” he told reporters at a briefing on Bursa Malaysia’s financial results today.

“While the market is softer, it makes us confident that we are seeing this stream of businesses coming in, that Malaysia has a deep base for investors,” he said.

Of the 13 companies that have received approval for listing, three will be listed on the Main Market and seven on the ACE Market, while the remaining three will be listed on the LEAP Market.

In the first half of the year, a total of 14 companies with a market capitalisation of RM5.5 billion were listed on the bourse.

Meanwhile, Bursa Malaysia’s profit after tax and minority interest (patami) fell 23.6% to RM93.2 million in the first half of the year ended June 30, 2019 (1H19) from RM122 million in 1H18.

Despite a decline in its performance, Muhamad Umar said he is cautiously optimistic for the second half of the year. With the net foreign funds inflows in June, he believes that the market has bottomed out.

“We think Malaysia has a wonderful story, growth is good, we have foreign funds flowing back in again and new projects are coming in, it’s time for investors to consider a comeback,” he said.

Although Muhamad Umar is upbeat on the prospect of foreign fund inflows for the second half of the year, he said it remains to be seen whether they will return to last year’s level due to the uncertainties in the market.

He said trade tensions between the US and China as well as a potential no-deal Brexit would be hurdles for foreign funds to return to their previous level on the local bourse.

“On the other hand, the fundamentals of the local market remain strong – we have a strong and sound banking system as well as positive developments such as the ECRL (East Coast Rail Link) and the relaunching of Bandar Malaysia,” he added.

For 1H19, Bursa Malaysia’s revenue fell 14% to RM250.49 million from RM291.27 million in first half of the previous year. It declared an interim dividend of 10.4 sen to be paid on Aug 30, 2019.


Gadang slips into the red in Q4

PETALING JAYA: Gadang Holdings Bhd saw a net loss of RM3.39 million in the fourth quarter ended May 31, 2019 against a net profit of RM23.31 million a year ago due to recognition of some variation orders for completed construction projects in the preceding year and the significantly lower profit reported for the Capital City project in the current year.

Its revenue however, was 7.3% higher at RM196.9 million compared with RM183.51 million previously.

The board has proposed a first and final dividend of 1.2 sen per share for the quarter under review.

Gadang’s net profit more than halved to RM48.49 million from RM96.38 million in the previous year, while revenue increased 17.7% to RM699.89 million from RM594.77 million.

The group is cautiously optimistic that major construction initiatives such as the revival of the East Coast Rail Line project and the development of Bandar Malaysia infrastructure components will be positive for the group.

It said the construction division will continue to bid for new contracts to enhance its order book as well as focusing on project execution to ensure timely completion of all on-going projects. Its existing outstanding order book stands at RM1.24 billion which will be able to sustain its operation for the next two years.

Meanwhile, Gadang said its property division will be supported by total unbilled sales of RM119.34 million.


IJM downgraded, earnings forecast cut

PETALING JAYA: IJM Corp Bhd’s rating has been downgraded with a cut in its earnings forecast after the termination of its Light Rail Transit Line 3 (LRT3) package as this will have a negative impact on the group’s future earnings, said analysts.

On Tuesday, the group said that it has been terminated as the works contractor for the underground package of the LRT3 from Bandar Utama to Johan Setia, following the remodeling of the project from a project delivery partner model to a turnkey model.

The RM1.1 billion contract was accepted by IJM’s wholly owned subsidiary IJM Construction Sdn Bhd in March last year. However, the entire project was suspended in June 2018 due to an overall cost review.

IJM’s share price declined 5 sen or 2.1% to close at RM2.38 today on 17.29 million shares done.

MIDF Research maintained its estimates at this juncture and target price of RM2 but downgraded the stock to a “sell” call, on the back of a more pronounced downside risk.

“IJM will likely continue facing operational challenges stemming from the slowdown in property and plantation segments. Concurrently, we saw its share price has priced-in the improved sentiment of construction sector amid the return of mega projects namely ECRL and Bandar Malaysia,” it said.

PublicInvest Research reduced IJM’s FY20-22 earnings forecast by 1-2% but noted that earnings would remain relatively stable backed by IJM’s balance orderbook of about RM6.7 billion and unbilled property sales of RM2 billion.

“IJM also stands a good chance to win more infrastructure related contracts given its capabilities as more jobs are rolled out in the not too distant future,” it said. It maintained its “neutral” call with a higher target price of RM2.60.

CGS-CIMB said the immediate focus will be on compensation/claims in relation to works done but not paid, including the preliminary works done during the three months prior to the project’s suspension.

“We also suspect that IJM may pursue claims, or payment, for the amount that was spent on the procurement of the tunnel boring machines, which is essentially part of project cost,” it said.

In the event the termination restricts any compensation element, it believes that IJM may require to make certain provisions or write-downs, the value of which it is unable to estimate due to lack of details.

CGS-CIMB said that the forgone profit and assumed 5% pre-tax margin makes up 3-4% of FY19-20 earnings per share hence the impact to revalued net asset value and target price is minimal.

“However, we believe this news would be negative to IJM’s share price, considering that previous indications pointed to the likelihood of an amicable renegotiation on the contract. Pending more details on the rationale of the termination and the next course of action, we keep our FY20-22 EPS forecasts,” it said while maintaining its “hold” call and RM2.10 target price.

Excluding LRT3, IJM’s orderbook of RM6.7 billion comprises roads, buildings and infrastructure jobs. Cumulatively, the remaining outstanding amount provides three times visibility to its construction revenue in FY19.


Bursa Malaysia slightly lower at mid-morning

KUALA LUMPUR, June 27 — Shares on Bursa Malaysia were slightly lower at mid-afternoon as losses in mainly finance, healthcare and plantation heavyweight stocks, outweighed mild gains recorded elsewhere in the market. At 11.05am, the key FTSE Bursa…


Bursa Malaysia poised to gain further to test 1,620 level

KUALA LUMPUR: Bursa Malaysia is set to rise further next week to test the immediate resistance at 1,620 and the next resistance threshold of 1,650.

Phillip Capital Management, Asia-Pacific, senior vice president (investment) Datuk Dr Nazri Khan Adam Khan said the near-term view suggests that the KLCI will continue hovering above the key support level of 1,600.

He said positive overnight Wall Street performance, Bank Negara Malaysia’s overnight policy rate (OPR) cut, rising prices of commodities and ease of the US-China trade tension would drive positive sentiment next week.

“Although the ongoing trade tension gave a sour impact to the ringgit versus the greenback, the local market remains attractive with the capital market recording a net inflow of RM2.1 billion,” he said.

Fundamentally, the local market continues to be resilient against the external headwinds with diversified sources of growth.

“Our participation in the ‘Belt and Road Initiative’ will give long-term advantage to the economic growth, as an important catalyst for foreign direct investment and connectivity to the global market.

“Looking forward, the lower OPR could be an important factor to boost the local economy in the second half of the year,” he said.

Nazri Khan said OPR cuts and the revival of the East Coast Rail Link and Bandar Malaysia projects would give a breath of fresh air for economic growth.

He said despite the weakness in investment activities, the local market posted a 4.5% growth in the first quarter of 2019.

“This is partly derived by the positive improvement in the agriculture sector and firm private consumption. This gives positive impact to the manufacturing sector, as well as the household spending,”he said.

In line with the encouraging private sector spending, BNM maintained its projection that the GDP will continue to grow between 4.3% – 4.8% this year.

He said despite the US-China spat have gave sour impact to the ringgit against the greenback, the local market remained to be attractive, given the RM2.1 billion net inflow recorded in the capital market.

Nazri said the S&P 500’s three-day winning streak during the week showed calmness towards the current state of trading relations between Washington and Beijing.

“We believe the US’ decision to effectively ban Chinese phone maker Huawei from the US market has overshadowed the earlier move to apply import taxes on European-made cars,” he said.

Overall, Bursa Malaysia was mostly higher despite the mounting concerns over the US-China trade spat.

On a Friday-to-Friday basis, the benchmark FBM KLCI settled 4.91 points weaker at 1,605.36.

The FBM Emas Index declined 74.91 points to 11,300.05, the FBMT 100 Index depreciated 68.25 points to 11,136.80 and the FBM Emas Shariah Index erased 99.09 points to 11,451.34.

The FBM Ace Index fell 137.43 points to 4,395.14 and the FBM 70 shrank 223.73 points to 13,855.32.

Sector-wise, the Financial Services Index dropped 3.31 points to 16,562.87, the Plantation Index eased 154.78 points to 6,895.50, and the Industrial Products and Services Index gave up 2.86 points to 163.82.

Weekly turnover inched down to 11.80 billion units valued at RM9.41 billion from 12.71 billion units valued at RM9.87 billion last Friday.

Main Market volume was weaker at 6.97 billion shares worth RM8.65 billion compared with 8.02 billion shares worth RM8.85 billion.

Warrants turnover slid to 1.67 billion units valued at RM427.70 million from 2.54 billion units valued at RM704.83 million.

The ACE Market volume, however, was higher at 3.22 billion shares worth RM326.88 million from 2.14 billion shares valued at RM301.87 million previously. – Bernama


OCBC: 2019 may be a weak growth year for Malaysia

KUALA LUMPUR, May 16 — OCBC Bank expects this year to be a weak growth year for Malaysia, concluding the full year growth of 4.4 per cent year-on-year (y-o-y). It said the current data print continues to indicate slow momentum in the Malaysian…


Malaysia’s economic fundamentals far stronger than in 1998, says Maybank IB CEO

SINGAPORE, May 13 — Malaysia’s economic fundamentals are very different today and far stronger than what they were in 1998, says Maybank Investment Bank Bhd (Maybank IB) chief executive officer Ami Moris. Citing some of the key economic…


Report: Bank Negara to maintain 3pc OPR following ECRL, Bandar Malaysia project revival

KUALA LUMPUR, May 8 — Bank Negara Malaysia (BNM) is expected to maintain its 3 per cent overnight policy rate (OPR) through 2019 as the East Coast Rail Link (ECRL) and Bandar Malaysia project revivals will provide an economic boost to the country,…


YTL buys Lafarge: Game changer or time to exit?

PETALING JAYA: AllianceDBS Research has advised investors not to accept the offer by YTL Corp Bhd to acquire a 51% stake in Lafarge Malaysia Bhd at RM3.75 a share as it believes that Lafarge could fetch higher valuations if it remains listed, on the back of improved outlook for the cement industry.

“We expect cement demand to recover with the revival of several major infrastructure projects and this should help support prices,“ the research house said in a report last Friday.

Several key projects such as the East Coast Rail Link, Bandar Malaysia, Klang Valley Double Tracking Project and Penang Transport Master Plan have recently been revived. As a result, AlianceDBS expects cement demand to improve, projecting a growth of 10% (FY19), 5% (FY20) and 5% (FY21).

In contrast, Kenanga Research believes that this is a golden opportunity for investors to exit their investments in Lafarge regardless of a mandatory general offer exercise, due to the limited upside (+3 sen) to the offer price of RM3.75/share and 103% / 95% premium to its and consensus target price of RM1.85/RM1.92.

“We view the offer price of RM3.75/share from YTL for the 51% stake in Lafarge as generous, especially when Lafarge has been loss-making since 2017, and expected to continue until FY20 due to intense competition,“ the research house said.

“We remain cautious over the overall group’s outlook in 2019 due to weak domestic demand woes and continuous overcapacity in the market leading to stiff competition and cement rebates wars. The group’s export strategy may partially help to drive revenue but given generally low margins from export sales, we do not expect any immediate significant bottom-line improvements,“ it added.

AllianceDBS is positive on YTL Cement Sdn Bhd’s acquisition as this would improve industry dynamics that have been pressured by intense price competition and sluggish demand over the past few years. YTL Cement and Lafarge will have a combined market share of about 60%, which would lead to better pricing power.

“We do not discount the possibility of YTL Corp injecting YTL Cement into Lafarge in the future, given that YTL Cement intends to keep Lafarge’s listing status (unless it receives acceptance level of more than 90%). This could create greater shareholder value,“ said AllianceDBS.

It expects the stock to trade close to the RM3.75 offer price in the near term. Assuming the stock is valued at its three-year forward price-to-book value mean (of 1.7 times book value), it would imply a RM4.55 value/share for Lafarge.

Lafarge’s share price closed unchanged at RM3.72 last Friday.