02-06-2008: KLCI ends morning session 8.32 points down

KUALA LUMPUR: The Kuala Lumpur Composite Index ended the morning session down 8.32 points at 1,267.78 points on thin trade on lack of fresh leads. The decline was not unexpected, given that the bellwether index had staged a last minute sprint last Friday for no apparent reason.

Moreover, the local political scene remains hazy even as investors digest news that leaders of the dominant party in the ruling Barisan Nasional coalition, United Malays National Organisation (UMNO), are slated to go for a two-day retreat from Thursday. The retreat came amid rumoured threats of its elected representatives may defect to the opposition.

There is also fresh talk of possible challengers to Prime Minister Datuk Seri Abdullah Ahmad Badawi’s leadership, stoked by statements made by his predecessor Tun Mahathir Mohamad, who reportedly outlined a formula for disgruntled members in the ruling coalition to oust its leader without defecting to the opposition.

Trade volume was thin with only 176.4 million shares worth RM381.89 million done at midday. Market breadth was negative, with laggards in the lead at 386 against gainers’ 137 while 215 others traded unchanged. Some 724 counters were untraded.

The broader FBM Emas Index was also lower at midday, losing 55.47 points to 8,464.15 points while the FBM Second Board Index shed 15.66 points to 5,770.57 points. The FBM Mesdaq Index was also down, giving up 66.49 points to 4,794 points.

Leading declines on the index were DiGi.Com Bhd, IOI Corp Bhd and Sime Darby Bhd, whose losses collectively dragged the KLCI down by 5.16 points. IOI fell 15 sen to RM7.30 while Sime Darby lost 10 sen to RM9.40.

DiGi fell RM1.50 to RM25, but on thin volumes of only 412,900 shares at midday. There are expectations on some portfolio rebalancing activities taking place with the inclusion of another telecommunications stock, TM International Bhd, on the KLCI this morning. TMI was unchanged at RM7.35.

Gamuda Bhd, which led losses last Friday after dipping 53 sen or 17.79% to RM2.45, was the most actively traded stock this morning. The stock was up 8 sen to RM2.53 at midday, with 21.58 million shares done. This was off an intra-day high of RM2.57, up 12 sen or 4.9% from last Friday.

Dealers are watching property developers with exposure to Vietnam, such as Gamuda Bhd, SP Setia Bhd and Berjaya Land Bhd, which fell last week on concerns of escalating costs in the country squeezing margins. At midday, SP Setia was down 4 sen or 1% at RM3.92 while Berjaya Land fell 22 sen or 4.31% to RM4.88.

Several brokers, including Aseambankers and Macquarie Research, this morning told clients that Gamuda had been oversold last Friday, maintaining a buy on the stock. “We believe that last Friday’s selling was overdone, as share price has fallen below its ‘stressed’ RNAV (revised net asset value) of RM3,” Aseambankers said in its note. It cut its target price for Gamuda to RM3 from RM3.45 previously, pegging the stock at 12 times FY2009 earnings. Macquarie, has a RM6.80 12-month target price for Gamuda.

JP Morgan, meanwhile, is advising caution on the possibility of more negative news, maintaining a “neutral stance for now”, pending greater clarity. Still, it too acknowledged that Gamuda’s record high RM10.5 billion construction orderbook “should be able to buoy earnings” and dividends for the next three years.

JP Morgan is relatively more bullish on SP Setia, telling clients that Malaysia still generates the bulk of earnings for the latter and that investment risk in Vietnam is “not significant given the terms of the land deal and minimal initial outlay”. It is ‘overweight’ on SP Setia with a RM4.20 target price, having pegged a 20% discount to its RNAV (revised net asset value) for the stock of RM4.90.

The KLCI was underperforming most major regional indices at midday. The Nikkei 225 was up 29.25 points to 14,367.79 points while Hong Kong’s Hang Seng Index jumped 310.40 points or 1.27% to 24,843.52 points. Singapore’s Straits Times Index was also higher, up 12.26 points to 3,204.88 points. Taiwan’s Taiex Index was also higher, up 66.58 points to 8,685.66 points at midday.

Wall Street, which ended last Friday mixed over the weekend, had little to do with most of Asia’s outperformance this morning. The Standard & Poor’s 500 Index and the Nasdaq Composite Index closed higher, each adding 2.12 points (0.15%) and 14.34 points (0.57%) to 1,400.38 points and 2,522.66 points, respectively. However, the Dow Jones Industrial Average ended marginally lower, down 7.9 points or 0.06% to 12,638.32 points.

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