Dovish Fed Could Spur Buying Interest

Market Review

Malaysia: The FBM KLCI (-0.36%) closed lower, pressured by selling in Banking and Utilities heavyweights, particularly PBBANK (-6.0 sen) and PCHEM (-14.0 sen), as investors traded cautiously following the selloff on Wall Street. The Energy sector (+0.10%) was the best performer.

Global markets: Wall Street closed higher, led by technology giants, as investors responded positively to better-than-expected economic data and the Fed’s dovish tone, which fuelled expectations of a rate cut in September. European stock markets also closed higher, while Asian markets ended with mixed performances.

The Day Ahead

The local exchange ended on a negative note prior to the Jackson Hole Symposium, in line with weak regional performances as profit-taking activities emerged. However, positive sentiment was observed on Wall Street following Jerome Powell's speech, which suggested that the Fed might adopt a dovish stance in the upcoming FOMC meeting, with a possible 25 basis point interest rate reduction. Looking ahead, traders will be closely monitoring key economic data, including (i) consumer confidence (Tue), (ii) preliminary GDP (Thu) and (iii) unemployment claims (Thu), and (iv) core PCE data (Fri). In the commodity market, Brent oil surged above USD79, while gold prices held steady above USD2,500. CPO prices rebounded significantly, surpassing RM3,800, as sentiment pointing towards positive demand from India ahead of the festive season (September-November).

Sector Focus: With the positive close on Wall Street last Friday, we anticipate buying support to emerge in the local market. While the weaker ringgit may dampen sentiment, the downside could be limited as bargain-hunting activities pick up in line with the US stock markets. Meanwhile, we favour the O&G sector, given the rebound in crude oil prices. Also, the Consumer, Aviation, Construction, Building Materials, and Automotive sectors could benefit in a stronger ringgit environment.

FBMKLCI Technical Outlook

The FBM KLCI index ended lower towards the 1,635 level. However, the technical readings on the key index were positive with the MACD histogram forming another positive bar and the RSI trended above 50. The resistance is envisaged around 1,650- 1,655 and the support is set at 1,615-1,620.

Company Brief

KIP REIT (KIPREIT) is acquiring a 4,663-sq metre land in Gerik, Perak, for RM14.8m, marking its third acquisition this year. The land, which includes a single-storey hypermarket leased to TF Value-Mart, will be financed through bank borrowings with minimal impact on the trust's financing ratio. (The Edge)

Semiconductor company D&O Green Technologies Bhd’s (D&O) net profit for 2QFY2024 surged nearly 11 times to RM7.76m from RM716,000 a year earlier, due to higher revenue across its main business segments. Revenue for the quarter increased by 20.76% to RM265.63m from RM219.97m in 2QFY2023, primarily due to higher contribution from the automotive segment. This growth was fuelled by new design wins, particularly in “Smart Lights Emitting-Diode (LED)” ambient lighting, rear combination lamps and headlamp applications. No dividend was declared for the quarter under review. (The Edge)

Sports Toto Bhd (SPTOTO) posted a net profit of RM67.6m for the fourth quarter ended June 30, 2024 (4QFY2024), up 8.4% from RM62.3m a year ago, driven by stronger performance of its principal subsidiary, STM Lottery Sdn Bhd. Quarterly revenue increased 2.1% year-on-year to RM1.65bn from RM1.62bn. The company proposed a fourth interim dividend of 2 sen per share, down from 2.5 sen a year earlier, payable on October 18. This brings total dividends for FY2024 to 10 sen, up from 9 sen in the previous year. (The Edge)

Original design manufacturer Uchi Technologies Bhd (UCHITEC) said its net profit for 2QFY2024 grew 13.38% to RM32.17m from RM28.37m a year earlier, driven by the US dollar's appreciation against the ringgit. Revenue increased 2.15% to RM59.06m from RM57.81m in 2QFY2023, amid the strengthening of the US currency. However, revenue in US dollar terms decreased 3% to US$12.5m, due to lower sales demand for its products and services, the group said. It declared a first interim dividend of 6.5 sen per share, payable on September 26, bringing the group’s year-to-date dividend payout to 8 sen. (The Edge)

Tomypak Holdings Bhd (TOMYPAK) is selling a property in Senai, Johor, including 4.14 hectares of land and factory buildings, for RM31m. The sale is part of the company's strategy to monetise non-core assets, with the deal expected to be completed by the fourth quarter of this year. (The Edge)

Telekom Malaysia Bhd (TM) said that its agreement to acquire a stake in Digital Nasional Bhd (DNB) has been terminated after DNB declined TM's request for additional time to seek shareholders' approval. Despite the termination, TM's 5G services for customers remain unaffected as it continues its 5G wholesale subscription with DNB. (The Edge)

Yong Tai Bhd (YONGTAI) will defend against a lawsuit from Kerjaya Prospek Group Bhd (KERJAYA), which alleges an unpaid contract sum of RM105.14m. Yong Tai disputes the claims, arguing Kerjaya Prospek breached the contract terms and asserting the outstanding amount is closer to RM36.4m. Yong Tai also denies all allegations and may consider countersuing. (The Edge)

Pantech Group Holdings Bhd (PANTECH) plans to list two wholly-owned subsidiaries, Pantech Stainless & Alloy Industries and Pantech Steel Industries, on the Main Market of Bursa Malaysia through a special purpose vehicle (SPV) named Pantech Global Bhd. The listing will allow Pantech to unlock value and provide shareholders with equity participation in the SPV. As part of the process, the SPV will acquire the subsidiaries for a total of RM293.88m, paid through the issuance of new shares. Following the acquisition, Pantech Global will proceed with an IPO, offering 30.85% of its shares. (The Edge)

Hibiscus Petroleum Bhd’s (HIBISCS) subsidiary, Straits Hibiscus Sdn Bhd, has agreed to acquire a 30% interest in the Block PM327 production sharing contract through a farm-in arrangement with Petronas Carigali Sdn Bhd. The acquisition is subject to regulatory approvals and other conditions. (The Edge)

Allianz Malaysia Bhd (ALLIANZ) reported a flat net profit for the second quarter ended June 30, 2024 (2QFY2024) amid increased claims for fire and engineering losses, and higher insurance service results from the investment-linked protection business and higher net investment income. Net profit for the quarter was RM167.02m, up 0.21% from RM166.67m a year earlier. Revenue increased 17.7% year-on-year to RM1.37bn from RM1.16bn, mainly due to higher insurance revenue from both segments. No dividend was declared for the quarter under review. (The Edge)

Jati Tinggi Group Bhd (JTGROUP) has secured a RM39.9m contract to install 33kV XLPE underground cables in Selangor. Its subsidiary, Jati Tinggi Holding Sdn Bhd, received the letter of award from YM Teras Sdn Bhd. The contract, effective immediately, is set to be completed within 660 days. JTHSB must provide a performance bond and purchase insurance before starting work. (The Edge)

Affin Bank Bhd (AFFIN) saw its net profit edge up 4.7% year-on-year to RM118.58m in 2QFY2024, up from RM113.23m the year before, thanks largely to writeback of impairment losses that helped offset a decline in income. Net interest income fell 8% year-on-year to RM170.26m, while non-interest income fell 29% to RM31.83m. The lender flagged that margins could continue to narrow in the short term as it grapples with shrinking deposits amid intense competition. No dividend was announced for the quarter. (The Edge)

MISC Bhd's (MISC) net profit for 2QFY2024 rose 19.43% to RM540.9m from RM452.9m a year ago, due to higher profit in the marine and heavy engineering segment, as well as the petroleum and product shipping segment. Revenue, however, dropped 6.2% to RM3.33bn from RM3.55bn due to lower earnings from ongoing projects and contract expires. The group proposed a second interim dividend of 8 sen per share, to be paid on September 26. This brings its year-to-date dividend to 16 sen per share for FY2024. (The Edge)

Sime Darby Property (SIMEPROP) expects the occupancy rate for Phase 3B of Battersea Power Station in the UK to rise to 50-80% by next year, up from 20% currently. This increase could reduce the impact of an accounting rule that negatively affected its 2QFY2024 results, leading to a larger joint-venture loss of RM87.9m. The impact is expected to lessen going forward, with no major effects anticipated for the rest of the year. The company is optimistic due to recent improvements, including a UK rate cut. (The Edge)

Oil and gas services firm Keyfield International Bhd (KEYFIELD) has secured a RM48m contract to provide an accommodation workboat with a primary charter starting August, valued at RM34.6m and an extension option worth RM13.4m. The contract includes crew and on-board services and is expected to boost Keyfield's earnings and net assets for FY2024. (The Edge)

S P Setia Bhd (SPSETIA) has confirmed that Datuk Choong Kai Wai remains its president and CEO, dismissing rumours of his departure. The company emphasised its commitment to achieving strategic goals under Choong's leadership and looks forward to his continued contributions. (The Edge)

Source: Mplus Research - 26 Aug 2024