Sep 20, 2017

E.A. TECHNIQUE – Breakout From Previous Resistance

EATECH’s share price rose an impressive 2.5 sen (5.8%) yesterday, closing at RM0.455 on the back of exceptionally healthy trading volume, with 5.2m shares exchanging hands - equivalent to around 2.6x of its daily average. Yesterday’s move can be interpreted as a breakout from its previous resistance of RM0.435-0.445, potentially signalling a reversal after its long downtrend since March. Likewise, a “Golden Crossover” had emerged between its 20-day and 50-day SMAs, with key-indicators also showing positive signs – MACD rising above zero and Signal line, while RSI continues its uptrend. We believe that combined, these are good indicatives of a move higher. From here, sustained followthrough should see the share having a clear path towards overhead resistances at RM0.49 (R1) and RM0.53 (R2). Conversely, a decisive break-below its aforementioned resistance-turned-support of RM0.435-0.445 (S1) is deemed as highly negative, with the share potentially capitulating back towards its low at RM0.35 (S2).


source: Kenanga Research - 20/09/2017

The Group are principally an owner and operator of marine vessels where the business is focused on marine transportation and offshore storage of O&G and the provision of port marine services.

Sep 6, 2017

Sept’s Alpha Stock Picks - Seizing Opportunities

A4 out of our 5 alpha picks outperformed the stagnant market in Aug 17 (FBMKLCI 0.7%), with three of our BUY picks delivering impressive monthly returns. Our portfolio of picks delivered a respectable and simple average of 3.4%. Our September picks: BUY Ann Joo, Bumi Armada, Gabungan AQRS, Globetronics and VS Industry. SELL RHB Bank. Ann Joo and AQRS are our new BUY additions, while Ekovest has been dropped.

Review of August picks. Four out of our four BUY alpha picks outperformed the market in August (see RHS), delivering a simple average of 4.5% (FBMKLCI 0.7%). Topping the list was VS Industry (7.7%), followed by Bumi Armada (5.0%), Globetronics (4.2%) and Ekovest (0.9%). However, our SELL-rated RHB Cap gained 1.0%, which reduced our overall average portfolio return to 3.4%.

Mega project plays to gain prominence in 4Q17. Our focus is particularly on: a) beneficiaries of the upcoming East Coast Rail Link (ECRL) and LRT3 contract awards, and b) steel producers that capitalise on twin benefits - sharp spike in steel prices with China’s ongoing Urban Blue Sky initiative and the expected local demand pick-up as mega projects ramp-up.

Our Sep 17 picks. BUY Ann Joo, Bumi Armada, Gabungan AQRS, Globetronics, VS Industry, and SELL RHB Bank.

Gabungan AQRS and Ann Joo were added to our conviction BUY list, while Ekovest was dropped .
AQRS, a leading contender in clinching contract parcels of the ECRL and LRT3, is also hoping to recover significant variation order claims for its completed subcontract work for MRT1. Ann Joo is a standout in the steel sector, and could deliver impressive earnings in 2H17. Although we continue to like deep-value Ekovest, the stock did not react positively to recent events (separate officiations of KL River City and River of Life) and could lack near-term rerating catalysts.

ANALYSTS’ TOP ALPHA* PICKSanalyst top picks

(Abdul Hadi Manaf)
Local steel bar prices have surged to a multi-year high of RM2,488/MT ytd (+14.2% mom). We believe that the local steel bar prices will sustain and potentially go higher when local steel demand picks up from various mega and infrastructure projects. Also note that China billets continue to trade at a premium and the price gap with local steel bars is widening.

Share Price Catalyst
 Significant improvement in local steel demand.
 Rise of local steel ASP to a multi-year high.
 Industry reform in China leading to a tight steel supply and sustained prices.

(Kong Ho Meng)
2017 is set to be a turnaround year for the group. 1H17 profit showed growth due to maiden earnings from Olombendo and Malta. New earnings from the remaining two floating projects (Kraken and Madura) will support a stronger 2H17 performance. We also see the possibility of a TGT1 extension.

Share Price Catalyst
 Full acceptance of FPSOs Olombendo and Kraken by end-17.  Recovery of OMS utilisation and rates.

GABUNGAN AQRS (Ridhwan Effendy)
Entry of new CEO, Datuk Azizan Jaafar, has brought in significant changes including: a)
a turnaround in the construction division with commendable margins; b) outstanding orderbook has been lifted to RM1.7b; and c) net gearing on track to hit 0.4x (from a high of 0.86x) by the year-end. The group’s all-time high construction orderbook of RM1.7b is expected to be boosted further in the near-term, driven by rail-related jobs, including LRT3 and ECRL. Also, a potential amicable settlement of the variation orders for MRT1 worth >RM100m could increase the likelihood of a bumper dividend.

Share Price Catalyst
 Further contract wins totalling >RM1b in the near term.
 Announcement of final settlement amount for MRT Line 1 with a potential of special

We are upbeat on Globetronics’ prospects, which is ramping up production of new sensor
products and planning for Phase 2 capacity expansion to meet end-clients’ demand. We expect significant improvement in earnings from 3Q17 onwards, given the full contribution from light sensors, which started mass production in June. We estimate strong net profit growth of 93% in 2018, but there could be earnings upside due to: a) commercialisation of developing products (particularly 3D imaging sensors), and b) strong demand for gesture sensors (due to end-client’s bundling strategy).

Share Price Catalyst
 Commercialising one or two new sensors in 2018-19, which are currently under co- development with the client, which could significantly lift our earnings forecasts.  Appreciation of US dollar against the ringgit.
RHB BANK (Keith Wee)
We maintain SELL and target price of RM4.65 (8.4% ROE, 0.82x 2017F P/B) given weak
growth trends (pre-provision operating profit growth 1.2% for 2Q17 and 1.7% for 1H17) and potential for relatively sharp increase in provisions post implementation of MFRS9 in 2018. The group has the lowest loans-loss coverage ratio inclusive of regulatory reserve in the industry at 81% (industry: 129%). This, coupled with RM1.8b in O&G loans under the watch list category (36% of total O&G loans portfolio and 1.2% of total loans base) does place upside risk to management’s rather benign net credit cost guidance of 25- 30bp for 2017.

Share Price Catalyst

 Potentially onerous provisioning requirements post MFRS9 given the group’s low loans
loss coverage ratios.
 O&G provisions and impairment may have yet to bottom out.

(Fong Kah Yan)
In addition to the three assembly lines for the vacuum cleaner box-build contract which
are slated to commence in FY17, we expect VS Industry to secure more contracts from
key customers in FY18 on increasing demand for existing products as well as new
product launches - notably in the beauty care segment.

Share Price Catalyst
 Securing new contracts from existing or new customers.
 Significant expansion plans by its China subsidiary.
 Sharp appreciation of the US dollar against the ringgit.

stocks valuation
source: UOB KayHian – 5th Sept 2017

Aug 21, 2017

OCNCash – Technical Overview


Stock Code: 0049

OCNcash analysis

OCNcash dataOCNCASH has formed a bullish engulfing candle to close above the EMA20 level accompanied by rising volumes. The MACD Histogram extended another green bar, while the RSI has risen above 50. Monitor for a breakout above the RM0.725 level, targeting the RM0.82- - RM0.86 levels. Support will be anchored around the RM0.675 level.

source: Malacca Securities Research – 21/08.2017

The Company is mainly an investment holding company. Its subsidiaries are engaged in manufacturing and distribution of resinated felt; manufacturing and trading of thermo-bonded nonwoven cloth.

Aug 16, 2017

PWF – Breakout


pwf technical analysis

pwf dataPWF has formed a breakout- - pullback- - continuation pattern above the EMA60 level. The MACD Indicator has issued a BUY signal, while the RSI is above 50. Price may rally, targeting the RM1.14- - RM1.17 levels.

Support will be pegged around the RM1.01 level.

source: Malacca Securities Research – 16/08/2017

The Group is principally involved in the manufacture and sale of broiler feeds and in the farming of broiler chicks.

Aug 14, 2017

Malaysia - Steel Stocks and Sector

Steel- Maintain MARKET WEIGHT. Maintain HOLD for Ann Joo Resources. Prefer deep-value stock – Choo Bee Metal Industries. Potential beneficiary of various highway projects – Prestar Resources.
Local steel prices rebounded in Jul 17, echoing China’s steel price movement driven by capacity cuts as well as expectations of increased local demand. We believe that the improvement in ASP should be sustainable moving into 4Q17 as we expect steel demand to improve on mega infrastructure projects. Hence, 2H17 earnings could surprise on the upside after an unexciting 2Q17. Maintain MARKET WEIGHT.
steel stocks growthWHAT’S NEW
Steel prices rebounded in Jul 17. Based on the Ministry of International Trade and Industry (MITI) statistics, domestic steel bar prices for Jul 17 rebounded by 17.4% yoy and 7.8% mom to RM2,178/MT, mainly reflecting the surge in China steel prices. Although Jul 17 prices are still lower than 1Q17 prices (1Q17: RM2,233/MT), we believe that the mom surge will provide for a sector-wide earnings excitement. We also noticed that the price differential between local and China imported billets had widened by 2ppt in July, In Jun 17, China imported billets which were traded at a 20% premium which expanded to 23% in Jul 17.
China’s steel production in Jun 17 at an all-time high. Chinese millers have increased output to an all-time high since Mar 17. China’s steel production was still high in May (- 0.7% mom, +2.5% yoy). We understand that Chinese millers continued to ramp up production as the industry is still reporting healthy margins.
Expect strong earnings growth in 3Q17. Although 2Q17 is expected to have been unexciting (due to weak demand and soft steel prices), we believe that earnings in 3Q17 will surprise on the upside should ASP be sustainable. In addition, we expect steel demand to show a gradual recovery mainly starting from 3Q17 on the commencement of mega infrastructure projects such as MRT 2, LRT 3 and the ECRL.
MALAYSIA MEGA PROJECT ROLLOUTmalaysia mega projects roolout
Maintain MARKET WEIGHT. Despite a brighter sector outlook, we believe that the steel companies are already trading within a fair trading range, but prudent capital management could lift valuations. We like steel companies that have prudent capital management, particularly Ann Joo and Choo Bee which had dividend payout ratios of 45% and 43% respectively in their previous financial years. We also believe these companies could declare a bonus share issue ahead of changes to The Company Act 2016 which will abolish the concept of par value.
Maintain HOLD for Ann Joo Resources (AJR MK/HOLD/RM3.11/Target: RM3.30). Although we have a HOLD recommendation, we believe that share price for Ann Joo could be lifted from effective capital management. Ann Joo has a dividend policy of up to a 60% dividend payout ratio subject to future capital requirement. In 2016, Ann Joo distributed 45% of its earnings to shareholders which translates into a dividend yield of 4.8%. Entry price: RM3.00
Prefer deep-value stock – Choo Bee Metal Industries (CBEE MK/NOT RATED /RM1.97). Choo Bee could be a proxy to sustainable growth in the flat steel segment. We also like its prudent capital management as it has a 43% dividend payout ratio for 2016 which translated into dividend yield of 4.6%. It is also a net cash company with cash level representing 19% of its market cap. It is currently trades at 6.4x 12-months trailing PE.
Potential beneficiary of various highway projects – Prestar Resources Bhd (PRST MK/NOT RATED /RM1.25). Prestar could benefit from various highway projects where it has 50% market share in supplying guardrail for major highways in Malaysia. Currently, it is trading at 7.3x 12TTM PE and dividend yield of 1.6%. Traditionally, it has been rewarding shareholders with a 20% dividend payout ratio.
steel socks comparison
Local steel prices rebounded in Jul 17. According to MITI’s website, ASP for local steel bars rebounded by 17.4% yoy and 7.8% mom to RM2,178/MT. The strong rebound followed
the soft decline in Jun 17 prices (-2.5% mom) and is in sync with the surge in China steel prices which reached an all-time high since 2013. We also understand ASP for local flat steel products had also picked up in early-Aug 17, after flat growth in Jul 17. We believe that the increase in ASP should be sustainable moving into 2H17 as the price differential between local and China imported billets widened by 3ppt mom in Jul 17. In Jun 17, China imported billets which were traded at a 20% premium which expanded to 23% in Jul 17. The sustainaibility of local steel ASP will be supported by improved demand by 2H17, largely from various mega projects such as MRT2, LRT 3 as well as the east coast rail link (ECRL).
• China steel production at all time high. Steel production in China in the month of June recorded an all-time high 73.2m MT, up by 1.3% mom and 5.4% yoy. To recap, steel production jumped significantly due to reportedly healthy margins which encouraged Chinese millers to increase output. It is worth to note that China’s steel industry made a US$9.8b loss in 2015 but turned around in 2016 with a US$5.1b net profit. In addition, we also attribute the escalation in steel production in China to the closure of induction furnace mills (IF) in China. We gathered that the IF closures are expected to have a fundamental impact on the China steel industry as it could have resulted in a 60m-70m MT cut in production output as of end- Jun 17 (approximately 25-30% of China’s rebar production). Note that the demolition of IF mill is an add-on to China’s initial plan to reduce domestic steel production capacity by 100-150m MT within five years. Products of IF mills are highly criticised for not being environmental friendly (during production process); IF mills do not remove the impurities from scrap, which leads to the production of substandard steel products.
malaysia steel stocks
Sluggish 2Q17 earnings but 3Q17 should see a positive surprise. We reiterate our views that for long steel products, we might see a milder earnings growth in 2Q17 due to softer domestic ASP and persistently weak demand for steel products. To recap, domestic steel bar prices dropped 2.5% mom and 2.3% yoy to RM2,020/MT in Jun 17 while steel bar ASP for 2Q17 dropped 7.1% qoq and 4.0% yoy to RM2,075/MT. However, earnings could surprise on the upside in 3Q17 given the strong rebound in steel prices coupled with a gradual improvement in steel demand. On the other hand, for flat steel products, earnings in 2Q17 could be sustained as prices of hot-rolled coil have fallen 13.9% qoq to Rmb3,223.10/tonne. To recap, average domestic ASP for flat steel increased 30.0% qoq to RM3,000/MT in 1Q17 and subsequently declined by 6.7% to RM2,800/MT in 2Q17.
Prestar Resources as proxy to various highway projects. We recently met with flat steel producer, Prestar Resources Bhd. The company basically operates with two main divisions – a steel processing unit (ie coil centre and steel pipes) as well as a product manufacturing unit (ie material handling equipment and road furniture). We think that Prestar Resources could benefit from mega highway projects as it is the largest guardrail manufacturer in Malaysia with an estimated 50% market share. Prestar Resources also has a proven track record as it previously supplied guardrail for a few notable projects such as the Sepang F1 Race Track, Kesas Highway and East Coast Highway. The company does not have a dividend policy but traditionally has been rewarding shareholders with a 20% dividend payout ratio
source: UOBKayHian – 14/08/2017

Aug 10, 2017

Technical Buy: YONGTAI

Yongtai Stock Code: 7066
Target Price RM1.47; RM1.60
Last closing price RM1.38
Potential return 6.5%, 15.9%
Support RM1.36
Stop Loss RM1.27
yongtai chart analysis
Possible for further upside. YONGTAI’s share price was retesting previous support level in the past few days. Putting “buy the dips” strategy into practice, easing RSI and MACD indicators currently signal reasonable entry level. Should the price then rebound, it may continue to lift price higher to the subsequent resistance levels of RM1.47 and RM1.60.

However, failure to hold onto support level of RM1.36 may indicate weakness in the share price and hence, a cut-loss signal.
source: Public Investment Bank – 10/08/2017

The principal activity of the Company is that of investment holding and the principal activities of the subsidiaries are trading and retailing of textile and garment products; manufacturing and dyeing of all types of fabric and related products; and property development.

Aug 7, 2017

Malaysia Strategy: Which Stocks Have Foreigners Been Buying?

Foreigners have returned in 2017.
Stocks with big change in foreign shareholdings and top stock ideas
● The latest release of fund flows data showed that foreign institutions added another RM0.4 bn (US$0.1 bn) to their holding in Malaysia in July 2017. We have now seen US$2 bn of net
foreign buying in Jan-July 2017. Foreign ownership of the market has recovered to 23.0%.
● Stocks which have seen the biggest increase in foreign shareholding (as a % of share capital) in 2017 so far are MAHB (+13.7 pp), GAM (+8 pp), MAY (+5.4pp), CIMB (+4.8 pp) and SIME (+2.7 pp). Foreigners reduced holdings in AirAsia (-9.6 pp), Karex (-3.0 pp), Tenaga (-2.4 pp), IOI (-0.5 pp) and TM (-0.5 pp).
● When comparing current foreign ownership levels with the post- GFC average, we find that foreign shareholding levels for MAHB, PBK, Tenaga, MAY and GENM are above post-GFC average. Stocks with foreign shareholding below post-GFC average include
Axiata, IJM, AirAsia, SP Setia, and CIMB.
● Stocks that are under-owned by foreigners where we have OUTPERFORM calls include CIMB, IJM, AirAsia and SP Setia. As for stocks that are over-owned by foreigners where we have UNDERPERFORM calls, we highlight Tenaga and Public.
Figure 1: Current foreign shareholding vs post-GFC averageforeign holding of malaysia stocks
Foreigners have returned in 2017
The latest release of fund flows data showed that foreign institutions added another RM0.4 bn (US$0.1 bn) to their holding in Malaysia in July 2017. Having seen consistent net foreign fund outflows over 2014-16 amounting to US$7.5 bn (RM29 bn), we have seen US$ 2bn of net foreign buying in Jan-July 2017. Foreign ownership of the market declined from a peak of 24.4% in 2012 to a low of 22.3% in Feb-17 but has recovered since then to 23.0%. However, foreign ownership remains below the levels recorded in 2012-15 prior to the emergence of news over 1MDB scandal (mid-2015).
Stocks with big change in foreign shareholdings
By value. Stocks which have benefitted most from foreign buying YTD in 2017 (ranked according to USD of net inflows) are MAY, CIMB, SIME, MAHB, Gamuda and Maxis. Meanwhile, foreigners have sold down their holdings in Tenaga, Air Asia IOI, TM and Karex.
Changes in foreign shareholding in stocks (% of share capital). Looking at movements in foreign shareholding (change in % ownership, pp), the stocks which have seen the biggest increase in foreign shareholding (as % of share capital) in 2017 so far are MAHB (+13.7 pp), GAM (+8 pp), MAY (+5.4 pp), CIMB (+4.8 pp) and SIME (+2.7 pp). On the other hand, foreigners reduced holdings in AirAsia (- 9.6 pp), Karex (-3.0 pp), Tenaga (-2.4 pp), IOI (-0.5 pp) and TM (-0.5 pp). Surprisingly, we have not seen a pickup in foreign shareholding in Genting Malaysia despite the improvement in earnings outlook and a marked pick-up in requests from foreign clients to visit Genting Highlands in recent months.
Deviation of foreign ownership from historical average. When comparing current foreign ownership levels with the post-GFC average, we find that foreign shareholding levels for MAHB, PBK, TNB, MAY and GENM are above post-GFC average. Stocks with foreign shareholding below the post-GFC average include Axiata, IJM, AirAsia, SP Setia, and CIMB.

Crowded trade and foreigners weightings
We now examine the percentage breakdown of foreigners' aggregate holdings in Malaysia into the various stocks and compare it with MSCI's prescribed weighting to gauge if foreigners are overweight or underweight on each stock.

OVERWEIGHT stock positions. Not surprisingly, this list is dominated by banks (Public, Maybank, CIMB), construction (Gamuda), high yield stocks (BAT, Astro) and PNB restructuring stocks (Maybank, SIME). Foreigners had a bigger overweight position on Tenaga in 2016 but have since trimmed to just a touch above MSCI weight. Top five stocks where foreigners' weighting is above MSCI weight are AirAsia, Genting Malaysia, Genting Bhd, BAT and CIMB.

UNDERWEIGHT stock positions. Again it is no surprise that this list comprises mostly sectors with bleak earnings outlook such as plantation stocks (IOI, KLK, FGV, Genting Plantation), oil and gas (Dialog, Sapura) and telecommunication stocks (Axiata, Maxis, DIGI).
We are somewhat surprised to see IJM in the list given the positive outlook for the construction business.

Top stock ideas

Stocks that are under-owned by foreigners – In this category, we highlight OUTPERFORM calls which are under-owned (either vs historical average or vs MSCI weight). Stocks that we like where foreign ownership is below the post-GFC average include CIMB, IJM, AirAsia and SP Setia. Incidentally, foreigners' estimated weighting on IJM is also below the prescribed MSCI weighting.

Stocks that are over-owned by foreigners. In this category, we highlight UNDERPERFORM calls which are over-owned (either vs historical average or vs MSCI weight) where there could be potential catalysts that could trigger further selldown by foreign investors. We highlight Tenaga and Public as stocks where foreign ownership is above the post-GFC average and also foreigners' estimated weightings are above the MSCI weighting.
source: Credit Suisse – 04/08/2017