The FBM KLCI extended gains to close marginally above the psychological 1,500 level on Friday, tracking the improved sentiment across regional markets last week. However, the local bourse may be headed for a widespread selloff, following a sharp decline on Wall Street overnight after the US Fed’s Chair reiterated its hawkish tone to tame inflation. We believe the US Fed’s interest rate decision going forward will continue to fuel market volatility. On the local front, investors may watch for Malaysia’s inflation rate at noon.

Thong Guan Industries Bhd (TGUAN) is regarded as one of the largest stretch film manufacturers in Malaysia. TGUAN is supported by 17 factories with more than 2,000 employees and products are exported to 70 countries worldwide.

Moving forward, outlook of the group may remain challenging given the global geopolitical risks as well as uncertainties over global economic growth. Nevertheless, REXIT is committed to its expansion strategies to bring two new customers on board in FY23 and FY24 respectively, while gaining new business from existing customers.

NOVA has around 960 outlets distributing its products currently, which is slightly below its earlier target at 980 outlets. Nevertheless, NOVA remains committed to increase its number of distributors to 1,100 in FY23 to gain more market share. We believe the additional market share brought in by new distributors will be the key driver for NOVA’s growth.

With the absence of orderbook replenishment in recent times, we expect a softer performance in the construction segment, while the balance EPC works at Vietnam is expected to be recognised only in 2HFY23. Moving forward, outstanding orderbook of more than RM200.0m will provide revenue visibility over the next 2 years. Meanwhile, JAKS tenderbook remain relatively unchanged at RM4.00bn, mainly in water infrastructure and building-related works.

Outlook remain challenging amid the rising building material costs continues to affect the margins in the general construction industry. Moving forward, their outstanding construction orderbook of RM442.0m (as at end-2QFY22) will provide earnings visibility over the next 2-3 years.

In view of the rising cost of materials, we note that SCOMNET has performed a revision on their products pricing in April 2022. To keep margins intact and little signs of tapering of inflationary pressure, the second revision of product pricing were also performed during August 2022. Moving forward, we reckon that net margins could chalk in slightly above 20.0% mark in subsequent quarters amid the favourable exchange rates, coupled with the gradual introduction of new medical devices that yields decent margins.

The FBM KLCI jumped on a broad-based recovery as bargain-hunting activities took place following a six-session decline. As sentiment across regional markets have shown signal of improvement, we believe follow-through buying activities may emerge on the local bourse. However, investors should trade in a cautious undertone ahead of Malaysia’s inflation rate which is due to be released at noon.