Softer PPI Data Could Fuel Further Rally

Market Review

Malaysia: The FBM KLCI (+1.04%) closed higher as investor confidence grew after the US October CPI data came out below consensus estimates, suggesting the potential end to future interest rate hikes. On the broader market, only the REIT sector (-0.25%) was the sole declining sector.

Global markets: Wall Street traded firmer after the October’s PPI data came out lower-than-expectations, suggesting a slowdown to inflation, while the US retail data slowdown. Both the European and Asian stock markets ended higher, the latter improved after China’s industrial output and retails sales beat expectations for Oct.

The Day Ahead

Following the volatile move last Friday, the FBM KLCI closed significantly higher for the second session straight amid solid buying interest after the cooling of the inflationary pressure in the US. Also, Wall Street gained momentum with the anticipation of a potential rate hike pause going forward with the slowdown in consumption activities. Meanwhile, the US-China meeting has said they have made “real progress”, with discussions aimed at easing friction between the two superpowers over military conflicts, drug-trafficking and artificial intelligence. We believe this will be boosting the stock markets to higher levels at least for the near term. On the commodity markets, the Brent oil prices traded lower around USD81/bbl.

Sector focus: Likely, the trading interest will be noted within the Technology sector following the softer-than-expected inflation CPI and PPI data from the US. Meanwhile, the glove sector may get a boost from better-than-expected KOSSAN’s results. As we are heading into the full-blown reporting season soon, we favour the Construction, Property, Building Material, Utilities and Consumer sectors.

FBMKLCI Technical Outlook

The FBM KLCI ended higher, with another solid flag breakout. The technical readings on the key index are mixed, with the MACD Histogram extending the first negative bar, while the RSI maintains above 50. The resistance is pegged around 1,470-1,480 and the support is at 1,440-1,455.

Company Brief

VSTECS Bhd’s net profit in the third quarter ended September 30, 2023 (3QFY2023) dropped 23.02% to RM12.73m, from RM16.54m last year, on higher distribution expenses, as it recorded lower sales revenue in the period. Also contributing to the weaker performance was higher impairments of financial instruments and lower forex gains, the ICT products, software and IT services provider said. Quarterly earnings per share declined slightly to 3.60 sen from 4.60 sen in 3QFY2022.The group declared a first interim dividend of 2.50 sen per share — unchanged from last year — to be paid on Jan 12, 2024. (The Edge)

Dialog Group Bhd has acquired the entire stake in Tarpon Platform Systems Malaysia Sdn Bhd (Tarpon Malaysia) and all assets of Tarpon Systems International II, LLC for a total cash consideration of US$1.19m (approximately RM5.5m). According to Dialog, Tarpon Malaysia provides engineering, construction, installation and maintenance services to upstream energy companies that use the Tarpon platform system (Business). Dialog said the proposed acquisition will be funded entirely by internally generated funds. The acquisition is expected to conclude and complete before year-end. (The Edge)

Amway (Malaysia) Holdings Bhd posted record earnings in the third quarter ended Sept 30, 2023 (3QFY2023) despite lower revenue, with net profit more than doubling YoY, as the group paid significantly lower incentives to its “Amway Business Owners”, in line with lower sales recorded. The improved profitability came after Amway issued a profit warning in August, after taking into consideration that inflation would squeeze consumers’ purchasing power and appetite to spend. Net profit for 3QFY2023 jumped 146% to RM46.21m or 28.11 sen per share, from RM18.75m or 11.41 sen per share a year ago (3QFY2022), despite revenue falling 10.3% to RM333.47m from RM371.79m. (The Edge)

UEM Sunrise Bhd’s net profit dropped 59.04% to RM8.34m for the third quarter ended Sept 30, 2023 (3QFY2023) compared to RM20.35m a year earlier, on lower operating profit margins. The property developer said profit margins decreased to 14% from 16% previously, due to higher selling and distribution expenses incurred by new project launches. Additionally, there was no recognition of fair value adjustment from investment in unquoted shares for the quarter. Its quarterly revenue fell 12.2% to RM312.35m from RM355.76m in 3QFY2022 amid lower revenue contribution from Residensi Solaris Parq in Mont Kiara, which was at the advanced stage of completion, as well as Serene Heights in Semenyih, Residensi Astrea in Mont Kiara, as well as Estuari Gardens and Aspira ParkHomes in Iskandar Puteri, Johor. (The Edge)

Berjaya Corp Bhd has disposed of a 4.89% stake or 37.8m shares in Redtone Digital Bhd via a direct business transaction, raising some RM27.59m or 73 sen per share. Following the disposal, Berjaya Corp told Bursa Malaysia on Wednesday that the group and its subsidiaries’ shareholdings in Redtone now stands at 42.57% or 329.06m shares. Berjaya Corp said the disposal, which took place on Tuesday, was done by its wholly-owned subsidiary Juara Sejati Sdn Bhd. It did not disclose the buyer. (The Edge)

Kossan Rubber Industries Bhd reported a net profit of RM40.97m for its third quarter ended Sept 30, 2023, up 76.14% from RM23.26m in the corresponding quarter a year ago, thanks to better cost controls and lower raw material costs in its glove business, as well as the sale of higher margin infrastructure products at its technical rubber products division. The stronger earnings came despite revenue being 28% lower at RM403.48m, versus RM560.52m previously, as contribution dropped from all divisions. (The Edge)

Berjaya Food Bhd’s net profit for the first quarter ended Sept 30, 2023 (1QFY2024) fell by 45.16% to RM19.03m from RM34.7m reported in the same quarter last year, as inflationary cost pressures squeezed its margins. As a result, earnings per share dropped to 1.08 sen from 1.96 sen, its bourse filing showed. Revenue dipped 1.6% to RM278.53m from RM283.05m, mainly due to lower sales from its Kenny Rogers Roasters’ restaurants in Malaysia. The group declared a first interim share dividend of one treasury share for every 100 ordinary shares held, which is equivalent to a 0.44 sen per share distribution or a total of RM7.72m, in respect of FY2024, to be paid on Dec 29 — with Dec 14 being the entitlement date. (The Edge)

Malaysian Pacific Industries Bhd’s (MPI) net profit in the first quarter ended September 30, 2023 (1QFY2024) declined by 68.65% to RM16.52m from RM52.70m in the same period last year, partly due to lower revenue and appreciation of the US dollar against the ringgit. Earnings per share fell to 8.31 sen from 26.50 sen. MPI cautioned that the current Middle East conflict could further dampen the recovery of the semiconductor industry in the near future. The group said its quarterly revenue dropped by 9.01% to RM513.21m compared to RM564.02m on the back of softer global semiconductor demand. (The Edge)

Property developer Crescendo Corp Bhd (CCB) is stepping up land sales in Pulai, Johor. It plans to sell nine parcels of freehold vacant land in Pulai, measuring 82,496.4 sq m for RM111m cash, following an announcement a week ago that it would divest seven parcels of adjoining lands, also in Pulai, for RM117.02m cash. CCB said it is expected to record a consolidated gain after taxation of approximately RM68.33m from the latest disposal. (The Edge)

Newly-listed ACE Market counter Plytec Holding Bhd ended its maiden trading day at an intraday low of 32.5 sen on Wednesday, down 7.14% against its initial public offering (IPO) price of 35 sen, despite opening one sen up on its debut in the morning. The counter's intraday high was 36 sen, while its intraday low was 32.5 sen. Plytec was the fourth worst-performing IPO so far this year after Radium Development Bhd, which fell 23% from its IPO price of 50 sen, Synergy House Bhd (down 18.6% from its IPO price of 43 sen) and SkyWorld Development Bhd (down 7.5% from its IPO price of 80 sen). (The Edge)

MAA Group Bhd is divesting an 85% stake in its Philippine general insurance business — MAA General Assurance Philippines Inc — to Triple P Philippines Pte Ltd for US$49.3m (about RM234.86m) cash, with an option to sell the remaining 15% stake for US$8.7m within a 14-month period. The total selling price of US$58m was arrived at after taking into consideration an implied price-to-book ratio of about 1.64 times based on MAA General Assurance’s audited net assets of RM168.44m as at end-2022, MAA Group said in a stock exchange filing on Wednesday. (The Edge)

Kumpulan Perangsang Selangor Bhd (KPS), which is being sued — together with Menteri Besar Selangor (Inc), or MBI, and the Kuala Langat land administrator — by three individuals for alleged fraud involving a land transaction in Kuala Langat, said the deal occurred 42 years ago. “It is important to note that KPS has a long-standing commitment to ethical business practices and legal compliance. We will thoroughly investigate the claims made in the writ of summons and statement of claim. “We are currently collating and reviewing pertinent documentation from 42 years ago and will be providing response via announcements to Bursa Securities and other related channels on material development in this case,” said KPS managing director cum group chief executive officer Ahmad Fariz Hassan in a press statement filed with Bursa Malaysia on Wednesday. (The Edge)

Source: Mplus Research - 16 Nov 2023