Sound corporate earnings and a robust economic outlook helped turn things around last year
By DASHVEENJIT KAUR / Pic By MUHD AMIN NAHARUL
The year 2017 was one of the strongest years for the local equity market, after three years of a rather abysmal performance.
The market started last year on a subdued note with the index moving between 1,635.53 and 1,763.67 points.
But the less than positive feel took a change for the good, helped largely by sound corporate earnings and a robust economic outlook.
The gross domestic product reached a two-year high of 5.6% in the first quarter of 2017 (1Q17), after five consecutive quarters of slower pacing since 2Q15.
The export data sprang a pleasant surprise from November 2016 and into 2017.
Imports, which also reflected a strong economy, expanded at a faster pace in the first half of 2017 (1H17) as manufacturers sourced for more resources to commensurate their production.
A majority of the listed firms reported improved profits and earnings year-on-year (YoY) during the first three months of 2017.
Although the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) may have been the second-worst performing Asian stock index last year, it was at a higher level compared to the negative growth between 2014 and 2016.
However, the FBM KLCI stuttered in 2H17, while regional peers rushed to double-digit growth.
In September 2017, the local bourse tried to break its highest level of 1,796 reached in June — but a lack of buying interest foiled the ambition.
Analysts agree that while the strong economic numbers are positive, a looming general election and uncertainties surrounding the political landscape are adding pressure to the local market.
Malaysia’s economy grew 6.2% in 3Q17, the fastest rate since 2014.
But the much anticipated Budget 2018 did not provide the steroid to drive the market, as the index slumped to a nine-month low on Nov 28, 2017.
Kenanga Research in a note said the overall technical outlook of the FBM KLCI remained biased towards the downside at the current juncture.
Key simple moving averages were in a “death-cross” state, while other key indicators continued to remain “directionless”, the research outfit told clients.
However, year-end window dressing saw the FBM KLCI rising higher.
According to Bloomberg data, the FBM KLCI rose 9.89% last year, closing the year at a 52-week high of 1796.81 points — eclipsing 1,795.04 points reached on May 21, 2015.
Analysts believe the equity index could surpass the 1,800-point level, which would will be the first time since May 20, 2015.
Champions in the Stock Price of Bursa
There were some star performers last year.
Bloomberg data showed the top five counters based on share price value appreciated between 420% and 700% last year, despite the index rising about 10%. All these companies, though, are small-cap counters.
Sino Hua-An International Bhd jumped 1,580% in value in the 52-week period.
The metallurgical coke producer share price ended 2017 at 39 sen.
The small-cap company had risen 83% in the past one month alone.
Interest in the company spiralled since late August after it announced a positive set of earnings for the 2Q17.
The results came after resuming its coke-manufacturing operations in February 2017.
The company posted a net profit of RM21.99 million for 2Q17 versus a net loss of RM9.62 million in the previous corresponding quarter.
After the announcement, Sino Hua-An’s share price surged 288% in a single trading day to close at 15.5 sen on Aug 30.
Hengyuan Refining Co Bhd (HRC) was one of the top fairy-tale stories at the local equity market with its market capitalisation rising RM10 billion last year.
Its share price was trading at RM2.03 at the end of 2016.
Change of fortune and new ownership, as well as the revival of global oil prices saw its share price rushing to RM16.30 as at Dec 29, a 706% gain.
The counter rose to its 26-year high of RM17.96 a day earlier.
In the 12 months, the stock had a similar or greater gain of 15 times.
It advanced eight times for an average 4.9% and declined six times for an average 4.2%.
The stock rose 65% in the past month and trades at 5.6 times trailing 12-month earnings per share (EPS).
HRC had turned around in its 3Q ended Sept 30, with a net profit of RM361.78 million, compared to a net loss of RM80.86 million in the previous corresponding period.
Revenues jumped 50% from a year ago to RM2.96 billion.
Formerly known as Palette Multimedia Bhd, UCrest Bhd is the second-best small-cap company last year after Sino Hua-An.
Its share price had gained 625% in the 12-month period of 2017.
UCrest was trading at six sen at the beginning of 2017, but climbed to 44 sen on the last trading day of last year.
The stock rose 29% in the past month and trades at 222.5 times trailing 12-month EPS.
Activity in the counter picked up in August amid talk of a private placement exercise, along with the announcement of several contracts inked with Trade House Atlantis Ltd.
The company turned around its operations in the 4Q ended May 31, 2017, with a net profit of RM512,000, followed by a profit of RM3.03 million in the 1Q ended Aug 31.
Atta Global Group Bhd’s share price had surged 588% for the whole of 2017.
From 13 sen, the metal product manufacturer ended 2012 at 91 sen, with a market capitalisation of RM130 million.
The stock rose 17% in the past month and trades at 4.1 times trailing 12-month EPS.
The stock has rebounded from the low of 68 sen on Dec 12 to a high of 91.5 sen on Dec 20.
However, the stock has returned less than 1% for 2017, according to Bloomberg data.
For its half-year period ended Sept 30, 2017, Atta Global saw net profit declining 13.08% to RM2.18 million, from RM2.51 million in the same period a year ago.
However, revenue jumped 53.18% to RM80.54 million, from RM52.58 million in 1H16, mainly from higher market demand and higher selling price incurred by its metal processing division.
Diversified Gateway Solutions Bhd (DGSB) has risen 10 sen, or a 420% increase, to end 2017 at 13 sen compared to three sen on the first trading day last year.
Bloomberg data showed the stock rose 81% in the past month, compared to the 0.5% increase against its peers.
The integrated business solutions service provider’s net profit for the 2Q ended Sept 30, 2017, rose 13% to RM1.23 million from RM1.09 million a year ago.
Its revenue also grew by 39.4% to RM25 million from RM17.93 million.
This was attributed to the business performance services segment, which almost doubled its contribution in the quarter under review.
DGSB, however, suffered margin compression during the quarter due to higher proportion of sales for hardware and licencing fees with lower margins, compared to project implementation and support fees.
Negative Price Change
Not all counters enjoyed a meteoric rise.
There were also counters which had investors running out the door due to the negative outlooks.
Steel miller Kinsteel Bhd, a Practice Note 17 company, tumbled 80% in December 2017 itself as it faced imminent suspension due to the failure to submit its regularisation plan.
The counter fell two sen, or 80%, to a record low of 0.5 sen on Dec 28, 2017.
Over the 12-month period, the stock fell 81.82% to end 2017 at one sen compared to five sen at the start of last year.
Kinsteel will be suspended with effect tomorrow as Bursa Malaysia Securities Bhd has rejected its application for a further extension to submit its regularisation plan.
The company will be delisted on Jan 9, 2018, unless an appeal is submitted to Bursa Malaysia by today.
Upon the delisting, the company will continue to exist but as an unlisted entity.
Kinsteel’s net loss widened to RM287.43 million for the 4Q ended June 30, compared to a loss of RM37.69 million in the previous corresponding period due to rising impairments.
Revenue in the 4Q dropped to RM44.72 million compared to RM86.57 million in the previous corresponding period.
Perdana Petroleum Bhd was one of the casualties of the global oil rout that started in 2014.
Perdana Petroleum’s shares were suspended on Sept 30, 2015, at RM1.54 per share, after its public shareholding spread was reduced to less than 10% upon the completion of the mandatory general offer by Dayang Enterprise Holdings Bhd.
Bursa Malaysia approved Perdana Petroleum’s resumption of trading after its public shareholding spread was regularised to 20.02%.
This followed the completion of Dayang’s special dividend which saw about 292.2 million ordinary shares in the oil and gas (O&G) company were distributed to shareholders of Dayang Enterprise.
Currently, Dayang owns a 60.48% stake in Perdana Petroleum after the share distribution exercise.
The counter closed on Dec 29, 2017, at 32 sen.
One of the large companies that lost its shine in 2017 was UMW Oil & Gas Corp Bhd (UMW-OG).
Its share price slumped 64% to end 2017 at 31 sen.
The company incurred losses for seven consecutive quarters before managing to return to the black in the 3Q ended Sept 30, 2017.
It reported a net profit of RM3.4 million compared to a net loss of RM135.4 million in the previous corresponding period.
The oil rig operator made a cash call to revive its financial health after its former controlling shareholder, UMW Holdings Bhd, distributed its shares in the company to its shareholders — effectively cutting off its bleeding O&G arm.
UMW-OG also failed to merge with Icon Offshore Bhd and Orkim Sdn Bhd, a union that was supposed to kick off the consolidation of the local O&G industry.
In the past year, the analyst consensus rating on the company was equivalent to ‘Hold’.
According to Bloomberg data, the stock is 20% below the Bloomberg consensus one-year target price.
Its returns had improved 4.9% since the start of the year, but still 63% short in the past 52 weeks.