Wall Street last night, causing a collapse of between 4.3% and 5.1%

Mayday! Mayday! The bears ran wild on Wall Street last night, causing a collapse of between 4.3% and 5.1% in key equity indices amid mounting concerns that the global economic recovery might stall.

This will inevitably trigger a sell-off across Asia equities today. The benchmark FBM KLCI on our Malaysian bourse will not be spared too, likely to drop below the immediate support level of 1,530 ahead. In terms of corporate developments, Atis should buck the falling market trend, as the company has proposed a selective capital reduction and repayment exercise to make a cash return of RM1.30 per share to entitled shareholders. Separately, Affin shares are expected to come under focus too after it called off its acquisition plan to acquire an Indonesian bank.

Wall Street went on a rollercoaster ride last night

Wall Street went on a rollercoaster ride last night. Key U.S. equity indices were down 1.4%-1.8% at their intra-day lows before staging a subsequent rebound to finish in positive territory (up between 0.3% and 0.9% at the closing bell) as some investors speculated that the Federal Reserve could implement fresh stimulus measures to boost the economy.

As a response, sentiment across Asia today will likely remain nervous following the volatile overnight performance of Wall Street. Back home, the benchmark FBM KLCI could struggle to break past its immediate resistance barrier of 1,550 ahead. With the economy being the main subject widely talked about currently, investors will be eager to check out Malaysia’s external
trade statistics for Jun.

One media survey has projected an annual rise of 6.1% for exports and 2.5% for imports, translating to a monthly trade surplus of RM7.7b. On the corporate front, recently listed Prestariang shares may see added trading interest today after it has signed an agreement with Prometric to develop a testing and certification program for English for its customers.

FBM KLCI may see a marginal downward bias

Asian equities could give back parts of their gains made yesterday due to an absence of follow-through buying activity today. This comes as key stock indices on Wall Street fell between 0.1% and 0.4% last night as investors reacted negatively to weak manufacturing data, which overshadowed an imminent legislative approval for a higher federal debt ceiling.

Back home, the benchmark FBM KLCI may see a marginal downward bias too, possibly attempting to find a stable footing above the resistance-turned-support line of 1,550.
Meanwhile, there is not much corporate news for investors to chew on today. One local business daily reported that a consortium comprising the controlling shareholders of Genting Group, Hong Leong Group and Lion Group has signed an agreement to acquire Tanjong’s numbers forecasting operation for RM2.1b. Separately, Pulai Springs has received a conditional takeover offer from its substantial shareholder to purchase the remaining shares at RM1.18 per share in cash (versus its last done price of RM0.90).

Report from HWangDBS

U.S. federal debt ceiling impasse still nowhere in sight

With a breakthrough in the U.S. federal debt ceiling impasse still nowhere in sight, key U.S. equity indices plunged between 1.6% and 2.6% last night. This would likely hit Asian stocks when trading resumes this morning.

Our Malaysian bourse will probably not be spared from the selling pressures too. The benchmark FBM KLCI is expected to retreat further, possibly testing its immediate support line of 1,550 ahead. Given the bearish underlying market tone, and couple with the thin news flows on the corporate scene, investors may not be in the mood to buy equities at this moment. One company that could see added interest today is Malaysia Airports, which is scheduled to announce its financial results for the Apr – Jun quarter in the early afternoon.

The road to recovery could be a gradual process

The road to recovery could be a gradual process as our Malaysian bourse faces stiff resistance from external headwinds. This, however, does not change our technical stance that the benchmark FBM KLCI remains on track to resume its 28-month rally beyond the ongoing consolidation phase.

Coming under renewed selling pressures, the key market barometer fell to a low of 1,552.71 before finishing at 1,565.06 for a weekly drop of 12.2-point (-0.8%). Faring relatively better through the week though were the FBM 70 Index (+0.7%) and the FBM ACE Index (+1.4%). Trading activity picked up to a daily average of 980.1m shares in volume (from 759.8m) and RM1.8b in value (RM1.5b previously), partly lifted by contributions from three new listings (namely Inari, Bumi Armada and Catcha Media).

Essentially, the fall in our local equities was broadly in tandem with the underlying regional weakness. Most share markets across the region saw red during the week – with China shares listed in Hong Kong (-1.3%), Taiwan (-1.3%) and Hong Kong (-1.2%) the hardest hit at the height of the selling – as overseas sentiment was hurt by continued worries on debt woes in Europe and America. Wall Street was affected too with its stock indices posting weekly declines of as much as 1.5%-1.6% at their lows. Nevertheless, almost all bourses subsequently rebounded from their intra-week troughs to finish in positive territory.

In a sense, our Malaysian bourse’s tracking of the regional patterns is not actually surprising since there is now a bigger presence of foreign money. According to the latest statistics provided by the stock exchange, foreign ownership (as a percentage of overall market capitalization) has climbed from 21.4% end-Mar to 22.0% end-Jun. This follows three straight months of net buying by foreign investors – totaling RM6.0b worth of stocks – during the second quarter.
In terms of absolute value, our ballpark calculations suggest that the amount of overseas funds parked in Malaysia equities stood at approximately RM290b at mid-year. Interestingly, this figure – which is derived based on a foreign shareholdings level of 22.0% as of end-Jun – has already exceeded the estimated sum of RM277b as of end-Dec 07 even though the foreign ownership back then was much higher at a peak of 26.2%.

For the coming week(s), external developments will still be the primary driving force behind our stock market performance since domestic news will be relatively scarce. On the calendar will just be a short list of events comprising:
(a) corporate earnings quarterly report cards from the likes of Public Bank (on Monday) and
Malaysia Airports (Thursday); and
(b) new listings such as Hibiscus Petroleum (on Monday), Peterlabs Holdings (Tuesday) and Prestariang (Wednesday).

From a technical perspective, it could take time for the FBM KLCI to recover after sliding back to where it was in late Jun. This suggests the bellwether may be locked in a sideways pattern in the short run, possibly bouncing up and down between the immediate support and resistance lines of 1,550 and 1,575, respectively. A preliminary resumption of our market uptrend – which we are still optimistic on – will probably be forthcoming only when the benchmark index crosses the 39-day moving average line (currently hovering at 1,567) and pulls away from the support-turned-resistance threshold of 1,575.

Report from HWangDBS

MRCB - Morphing into GLC property proxy

Property proxy. Property profits should expand at 3-year CAGR of 40% and contribute 63% of FY13F EBIT (vs 35% in FY10) anchored by two launches: Lot B strata offices (GDV RM1.2bn, ASP RM1,250 psf, 60% sold) and Lot D (GDV RM1.4bn, ASP RM1,100 psf, launch end-2011). Lot B saw repeat en bloc purchases from Korean fund, Daol, of 24% of NLA. At Lot D, the successful launch of St Regis Residences (ASP RM1,800 psf; c.50% sold) should be positive for adjacent Lot D. With 12 acres left to develop in KL Sentral, the swap arrangement with the government involving RM129m of construction works on 5-acres of land in Brickfields (implied land cost RM590psf) will ensure
continuity there. We estimate SOP accretion at RM0.20/share based on DCF (RM1bn GDV, 6x plot ratio, and 25% margins).

Visible construction flows. Our RM700-800m p.a. new order assumptions FY11-FY12 seem conservative given the healthy pipeline of jobs - LRT, MRT and River of Life. The
media continued to highlight that MRCB is the front runner for the LRT extensions (Ampang line) worth RM800m. The project will be awarded very soon. We expect MRCB to capitalise on its role as PDP for the River of Life Project, with Phase 1 (first 10.7km) worth RM3.3bn with some visibility on contract awards by end-2011

Raised FY12-13F EPS by c.20% after factoring in launch of Kia Peng condos (GDV RM324m), Batu Feringhi (GDV RM184m) and Setapak (GDV RM1.5bn). We assumed they
would be launched in 2012 with 18-20% margins. Our forecasts exclude Penang Sentral (RM2bn GDV) and the 5 acres in Brickfields.

BUY, TP nudged up to RM3.25. MRCB is poised for a rerating with more sustainable earnings delivery and visible share price catalysts. With the upcoming GE, it is also an ideal proxy, as a GLC-linked contractor and developer. We nudged up our target price to RM3.25 after imputing higher earnings and rolling over valuation base to 2012, although the full impact was offset by higher debt levels.

It is going to be a test of resilience for our Malaysian bourse today

It is going to be a test of resilience for our Malaysian bourse today. We reckon the benchmark FBM KLCI will probably slip towards the immediate support mark of 1,575 ahead.

This follows an overnight slump on Wall Street. In particular, major U.S. equity indices plunged between 1.2% and 2.0% at the closing bell on rising concerns that the debt woes in Europe as well as U.S. could spread. Hoping to buck the bearish market sentiment today are stocks like Kencana Petroleum and SapuraCrest, following a proposal to merge their businesses made by a special purpose vehicle (SPV) via the acquisition of the assets and liabilities of both companies at a respective price of:
(i) RM3.00 per Kencana Petroleum share to be satisfied by RM0.486 in cash and 1.26 new SPV shares per Kencana Petroleum share; and
(ii) RM4.60 per SapuraCrest share to be satisfied by RM0.685 in cash and 1.96 new SPV shares per SapuraCrest share.

From HWangDBS