Technology goes from ‘neutral’ to ‘overweight’

PETALING JAYA: AmInvestment Bank Bhd upgraded its stance on the technology sector to “overweight” from “neutral” given its positive outlook on the sector over the next six months.

Its top picks for the sector are Inari Amertron Bhd and Malaysian Pacific Industries Bhd (MPI).

In its report today, the research firm said that the industry’s earnings for the second half of the year (2H 2018) would be driven by sensors, radio frequency (RF) chips and operational efficiencies.

In 2H 2018, AmInvestment said the sector’s key theme should revolve around connected cars, smart homes and automation, which paints a positive outlook for sensor and RF chip manufacturers, automated equipment manufacturers and companies looking to improve operational efficiencies through automation.

“In the smartphone segment, while sales volume is plateauing in developed markets, sensor and RF content continues to increase. Overall, the earnings prospects are looking positive for local semiconductor companies,” it added.

Meanwhile, AmInvestment said among the key beneficiaries during the second half period are Inari Amertron, MPI, Unisem and Globetronics given sensors and RF are imperatives in a connected world.

The research firm also noted that Inari Amertron and MPI are among the beneficiaries of the government’s announcement in Budget 2018 to provide matching grants and capital allowances to support automation initiatives.

It said prospects of ViTrox Corp and Pentamaster Corp are also exciting amid the rising adoption of automation.

Additionally, AmInvestment said its “overweight” stance on the sector may be further strengthened if there is a change in the US dollar outlook for the better; the semiconductor companies under its coverage (Inari, MPI and Unisem) secure new jobs of significance; and/or share prices correct by 15% to 20%.

However, it noted that among the key risks include the lukewarm demand for end-products owing to weak economic conditions; monotonous content growth in underlying products in the absence of innovation; and margin erosion in the face of a weakening US dollar.

“If such risks materialise, we may downgrade our stance on the sector from ‘overweight’ to ‘neutral’,” it added.

KLCI reverses loss, rises 0.54%


KUALA LUMPUR (June 11): The FBM KLCI reversed its earlier losses and rose 0.54% at the midday break, tracking gains at most regional markets. At 12.30pm, the FBM KLCI rose 9.66 points to 1,787.98. The index had earlier slipped to its intra-morning low of 1,770.83. The gainers included Dutch Lady Milk Industries Bhd, KESM Industries Bhd, Ajinomoto (M) Bhd, Petronas Gas Bhd, Top Glove Corp Bhd, Sime Darby Plantation Bhd, Petronas Dagangan Bhd, Kossan Rubber Industries Bhd and MISC Bhd. The actives included My E.G. Services Bhd, Sapura Energy Bhd,Read More

KLCI earnings may rise by 5.3% in 2018

PETALING JAYA: AmBank Research, which called the first quarter reporting season “a tad discouraging”, has projected FBM KLCI’s earnings to grow by 5.3% and 7.1% in 2018 and 2019, underpinned by a gross domestic product growth of 5.5% and 5.3% respectively.

Its year-end targets of the local bourse are forecast at 1,900 points and 2,040 points in 2018 and 2019 respectively.

“While the 1Q 2018 reporting season has been a tad discouraging so far, it has not derailed the positive growth trajectory of FBM KLCI’s earnings,” the research house said.

It said at about two-thirds through the 1Q 2018 reporting season (68% of its stock universe having reported), corporate earnings have thus far been relatively unremarkable – with 9%, 64% and 27% beating, meeting and missing its projections respectively.

“In terms of earnings growth forecasts of ‘all sectors’ – a broader but slightly more volatile earnings gauge encompassing the entire universe of our stock coverage – the numbers for 2018 and 2019 have been adjusted to 11.4% and 10.4%, from 15.6% and 10.6% previously,” said AmBank.

It believes the key catalysts for the FBM KLCI could come from the normalisation of the market risk premium as greater clarity on new government policies emerges; improved sentiment towards emerging markets, which are experiencing an outflow of funds at present, and a more level playing field across sectors that may unleash the growth potential in corporate Malaysia.

On the other hand, FBM KLCI could also be weighed down by stronger-than-expected US inflation and wage growth which could lead to a steeper rate hike cycle in the US and a stronger US dollar, which could spur more outflows from emerging markets; the escalation in the US-China trade war and geopolitical tensions; as well as earnings disappointments from FBM KLCI heavyweights.

“For exposure to consumer spending, we pick banks with strong consumer banking franchise (Public Bank and BIMB), apart from consumer/auto stocks (Berjaya Food, Power Root and Bermaz). We like exporters that benefit from strong external demand (Top Glove, V.S. Industry and Inari Amertron). Against a backdrop of firm oil prices, we pick certain defensive oil & gas names (Yinson and Dialog).”

According to Rakuten Trade Sdn Bhd head of research Kenny Yee, the local bourse is expected to trend between 1,750 and 1,800 points in the short term.

The FBM KLCI closed 21.56 points or 1.2% lower to 1,775.84 points on Monday on continued selling pressure.

Yee told SunBiz that the KLCI will trade below 1,800 points for the time being before improving later this year.

“Fundamentals remain solid as depicted from the ongoing results for first quarter which have been rather decent so far. For us, we remain positive with our 2018 KLCI target still at 1,960 barring any nasty surprises from Malaysian corporates despite the uncertainties overshadowing the construction and toll concessionaires at the moment,” Yee explained.

Meanwhile, Nomura Securities Malaysia Sdn Bhd head of equity research Tushar Mohata said he is neutral on the local stock market as the new government should be given the benefit of the doubt to come out with their economic policies and direction to address some of the fiscal concerns which appears to worry investors.

KLCI tumbles 1.6% on renewed public debt worries


KUALA LUMPUR (May 23): The FBM KLCI tumbled to its lowest level in three months on renewed concerns over national debt levels, following recent statements by Prime Minister Tun Dr Mahathir Mohamad and Finance Minister Lim Guan Eng which signalled the national debt had breached RM1 trillion. At 12.30pm, the FBM KLCI tumbled 1.6% or 28.67 points to 1,816.36. Losers thumped gainers by 516 to 97, while 568 counters traded unchanged. Volume was 1.42 billion shares, valued at RM1.25 billion. Top losers included Petronas Dagangan Bhd, Panasonic Manufacturing Malaysia Bhd,Read More

Market volatility to spur more share buybacks

PETALING JAYA: More companies and substantial shareholders are expected to launch share buybacks, at a time when share prices have tumbled as the equity market goes through a period of volatility amid changes in the government and policies following the surprise win by Pakatan Harapan in the 14th general election.

Rakuten Trade head of research Kenny Yee said it is good to buy back shares if companies feel that their share price is undervalued and if it has some surplus cash.

“It's possible that more companies will do more share buybacks. Most of it are stocks that have fallen (share price) a fair bit. Some of the companies have that (practice) in place that if the share price drops, they would be able to buy back some of the shares,” he told SunBiz.

George Kent (M) Bhd (GKM), for example, is speeding up its share buyback plan after its share price took a beating last week. GKM's share price tumbled 60% last week compared with its last close before the election. It has proposed to obtain shareholders' approval for the company to purchase its own shares of up to 10% of its share capital, at an EGM on June 4, instead of waiting for its AGM.

“The proposed share buyback is to permit a stabilising factor on the supply and demand as well as the price of the shares of GKM on Bursa Securities. Consequently, the fundamental value of the company may be preserved, which may in turn have a favourable impact on the share price of the company. It is to be carried out when the share price is transacted at levels which do not reflect the potential earnings capabilities and/or underlying asset value of the group,” GKM said.

The company said the share buyback exercise will also enable it to utilise its surplus financial resources to purchase its shares. In addition, the purchased shares may be held as treasury shares and resold on the stock market of Bursa Securities with the intention of realising a potential gain without affecting the total issued share capital of the company.

Should any treasury shares be distributed as share dividends, this would serve to reward the shareholders of the company, GKM added.

Meanwhile, Yee does not see share buybacks as a “trend” but noted that as and when the situation arises, corporates would buy back shares during times of opportunity.

Last week, companies that undertook a share buyback include My E.G. Services Bhd (MyEG), IJM Corp Bhd, Kenanga Investment Bank Bhd, Tropicana Corp Bhd, Gabungan AQRS Bhd, Yinson Holdings Bhd.

Many substantial shareholders also upped their stake (direct and indirect interest), such as the likes of IOI Corp Bhd executive chairman Tan Sri Lee Shin Cheng, MyEG executive chairman Datuk Dr Norraesah Mohamad and group managing director Wong Thean Soon, Ahmad Zaki Resources Bhd executive vice-chairman Tan Sri Wan Zaki Wan Muda, Inari Amertron Bhd director Datuk Seri Thong Kok Khee, and Glomac Bhd group managing director and CEO Datuk Seri Fateh Iskandar Mohamed Mansor to name a few.

“They're confident of their company, that's why they're buying shares under their names,” said Yee.

Another analyst said share buybacks can help to stabilise market sentiment, but market view may be different and may still sell down shares.

“It (share buyback) is a trend now because everything is deemed to be quite cheap and because the price has tumbled so much from the pre-election prices. If the share price didn't tumble so much, they may not be buying it.”

However, the analyst clarified that this “trend” does not necessarily happen after an election, but only when share price has tumbled too far off.

“It makes sense for management to buy more stake if there's unreasonable selldown in the company,” said another analyst.

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