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Friday, April 28, 2017

Market Daily Report: KLCI up 0.14pts, market turns in mixed performance ahead of extended weekend

KUALA LUMPUR (April 28): The FBM KLCI gained marginally today amid mixed sentiments, ahead of the Workers Day weekend and the release of U.S. gross domestic product (GDP) data.
The benchmark index closed 0.14 points higher at 1768.06.

Inter Pacific Securities research head Pong Teng Siew said the mixed performance was due to some profit-taking ahead of the extended weekend, but mitigated by weak U.S. gross development product forecasts, prior to the release of actual data by the Department of Commerce tonight.

The upswing from earlier political development in France and first look of U.S. tax cut plan has also weakened, said Pong, slowing down gains in the U.S. and subsequently the regional markets.

“You get a sense that the momentum from the U.S. market upswing is somewhat weakening, with a mixed picture all over. The upswing reaction, based on very little information other than political data, is not lasting.

“Market is starting to adjust, and is bracing for some disappointment,” he added.
Reuters reported that Asian stocks slipped as investors took profits from the recent rally, ahead of the Labour Day weekend, and the Golden Week Holiday in Japan.

Japan’s Nikkei 225 lost 0.29%, South Korea’s Kospi declined 0.18%, while the Hong Kong Hang Seng Index lost 0.34%.

On the local front, gainers were led by Dutch Lady Milk Industries Bhd, while decliners were led by Scientex Bhd.

There were 544 gainers against 403 losers, with 358 counters closing unchanged. A total of 3.1 billion shares, worth RM2.9 billion, were traded.

Source: The Edge

Thursday, April 27, 2017

Brokers Report: HSL - Rising Earnings Beckons

Retain BUY with target price (TP) of RM2.19


  • Strong reassurance from visit to HSL in Sarawak
  • Affordable housing and wastewater works will support earnings growth
  • Reaffirm earnings estimates
  • Maintain BUY with an adjusted TP of RM2.19

Strong reassurance from visit to HSL in Sarawak. We emerged from HSL’s Kuching Wastewater Treatment and La Promenade visit in Sarawak with reassurance on our revenue, target orderbook and earnings forecasts for FYE17/FYE18/FYE19

Key takeaways from visit:
Compelling underlying sewerage needs. HSL’s key competency in sewerage and wastewater engineering i.e. micro tunnelling and piping will anchor its future earnings prospect due to the strong need of efficient wastewater and sewerage connection in Kuching, Miri and Sibu from growing population. In a revised master plan in 2007, Sarawak Sewerage Department (SSD) has estimated that 3 Wastewater plants are needed to support the population in Kuching. In March 2016, HSL was awarded package 2 of the Kuching Wastewater Treatment Plant amounting to RM750m through its 75% joint venture with Nishimatsu Construction and recently in March, 2017 it clinched another award for Miri Wastewater Treatment Phase 1. Note that SSD has earmarked total of 4 phases of wastewater treatment plant in Miri amounting to RM3.3bn. Thus, we reckon that due to its key expertise in micro tunnelling and sewer piping HSL will stand to benefit.

Affordable housing will be a levelling factor. Secondly, we observe that affordable housing would be a levelling factor to even out earnings blips from progress billings and project recognition. We notice that HSL’s land banks are strategically located to be developed under the public housings such as Projek Perumahan Rakyat (PPR) and Projek Perumahan Penjawat Awam (PPA1M) such as in Muara Tebas and Muara Tuang. We estimate the comfortable level of GDV for affordable housing projects that HSL could undertake (based on its working capital) is c.RM170m. Last year, the state government has approved a total of 18,787 units of PR1MA houses to be constructed within the next 4 years. We are expecting HSL to take the opportunities in upcoming quarters.

Recommendation. We maintain our BUY recommendation with target price RM2.19 based on DCF method (WACC: 6.7%). We take cognizant that the previous results, HSL did not make the mark. We are convinced that earnings will make a comeback during the 2QFYE17-3QFYE17 as HSL would be able to recognize billings from Pan Borneo project. So far, anaemic earnings have subdued its share price advancement but due to its franchise in microtunneling, sewer piping and waste water engineering in Sarawak, HSL should be revisited.

Source: MIDF Research - 27 April 2017