Friday 29 Mar 2024
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AMERICAN stock markets ended lower on Wednesday as the February ADP job reports came in at 212,000 jobs and below the 219,000 number that economists estimated. Ahead of the jobless claims and non-farm payrolls reports later this week, the S&P 500 Index inched down 9.25 points to 2,098.53 points whilst the Dow tumbled 106.47 points to end at 18,096.9.

In Malaysia, the FBM KLCI moved in a narrow and weaker range of 20.25 points for the week with higher volumes of 2.11 billion to 2.83 billion traded. The index closed at 1,806.09 yesterday, down 19.45 points from the previous day as blue-chip stocks like CIMB Group Holdings Bhd, Genting Bhd, Petronas Dagangan Bhd, Public Bank Bhd, PPB Group Bhd and SapuraKencana Petroleum Bhd caused the index to fall on consistent profit-taking activities. The ringgit was much weaker against the US dollar at 3.654 as Brent crude oil remained steady at US$60.20 per barrel.

The index rose on a rally from the 801.27 low (October 2008) to its 1,896.23 all-time high (July 2014) and it represents an extended Elliott Wave “Flat” rebound in a “Pseudo-Bull” rise completed. The next few months’ index price movements since July 2014 had key swings of 1,837.28 (low), 1,879.62 (high), 1,766.22 (low), 1,858.09 (high), 1,671.82 (low), 1,810.21 (high), 1,706.18 (low) and 1,831.41 (high).

All the index’s daily signals are mixed with negative readings for its CCI, MACD and Stochastic but positive readings for its DMI and Oscillator. As such, the index’s weaker support levels are seen at the 1,738, 1,770 and 1,800 levels, while the resistance areas of 1,806, 1,831 and 1,858 will cap any index rebound.

The FBM KLCI’s 18 and 40 simple moving averages (SMA) depict a neutral trend for its daily chart. However, the price bars of the index are now between the 50 and 200 SMA and remains in a neutral position on that front. The recent fall from its all-time high of 1,896.23 saw a trough at 1,671.82. The price rebound from 1,671.82 stalled at 1,831.41 (on Feb 4 2015) and remains below the 200-SMA line of 1,828.61.

Due to the poorer tone for the FBM KLCI index, we are recommending a chart “sell” on Brahims Holdings Bhd (Brahims). Recently, Brahims made the news after agreeing to new terms for its in-flight supplies agreement with Malaysian Airlines (MAS). As part of the MAS cost restructuring by Khazanah Nasional, Brahims’ 25-year RM6.25 billion exclusive contract will take a 25% cut in monthly bills, pending a new catering deal. Brahims also agreed to a 60% cut in payments withheld by MAS. The negative news flow has triggered the wave of recent selling that drove Brahims’ share price down below RM1.

Looking at its fourth quarter of financial year 2014 (4QFY14) results announcement, Brahims recorded a 27.5% fall in revenue to RM79 million in this quarter from RM109 million in 4QFY13. The group also recorded a pre-tax loss of RM58 million in 4QFY14 compared with a profit of RM22 million in 4QFY13. The poor profitability was due to concessions given to MAS under its recovery plan amounting to RM56 million by its subsidiary.

Brahims also pointed out that the in-flight catering segment continues to remain challenging despite the expected increase in passenger load as its profit margins may be adversely impacted by the implementation of a new pricing methodology.

A check of the Bloomberg consensus reveals that only two research houses have coverage on Brahims. Of the two research houses there is one “sell” call and one “hold” call. Brahims’ 12-month trailing earnings per share on Bloomberg indicate a loss of 14 sen. Its price-to-book value ratio of 0.68 times indicates that its share price is trading at a discount to its book value.

Brahims’ chart trend on the daily, weekly and monthly time frames is very firmly down. Its share price made a massive decline since its all-time high of RM2.71 on March 7, 2014. Since that RM2.71 high, Brahims fell to its recent low of 81 sen this month.

As prices broke below its recent key critical support levels of RM1.16 and RM1.12, look to sell Brahims on any rebounds to its resistance areas as the moving averages depict very firm short- to long-term downtrends for this stock.

The daily, weekly and monthly indicators (like the CCI, DMI, MACD, Stochastic and Oscillator) have issued sell signals and now depict very firm indications of Brahims’ eventual move towards much lower levels. It would attract firm selling activities at the resistance levels of 81 sen, RM1.12 and RM1.16. We expect Brahims to witness weak buying interest at its supports of 55 sen, 74 sen and 80 sen. Its downside targets are located at 40 sen, 36 sen, 30 sen and 18 sen.

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Lee Cheng Hooi is the regional chartist at Maybank Kim Eng. The views expressed in the article are the opinions of the writer and should not be construed as investment advice. Please exercise your own judgment or seek professional advice for your investment decisions. Technical report appears every Wednesday and Friday.

This article first appeared in The Edge Financial Daily, on March 6, 2015.

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