RHBInvest Research Highlights 04th January 2012

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RHBInvest Research Highlights 04th January 2012

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Publish date: Wed, 04 Jan 2012, 10:25 PM

04th January 2012

Top Story

Market Momentum ' Rally ahead?

Market Update

- As we start 2012 with the overhanging concerns of the 2H 2011, we are fearful that this could be another year of "more of the same". However, on a brighter note, we note the possibility of two market rallies in the near term ' "January effect" and "Chinese New Year rally".

- While the January effect has been evident every year for the last 10 years (and has led to a positive annual return in seven of the 10 years), the historical data for the pre-Lunar New Year rally is less conclusive (but the post-festival returns have actually been negative in 7 of the last 10 years).

- Beyond Jan, we believe 2012 will be influenced by 2011 legacy issues. We thus continue to advocate a cautious stance, although we also recommend accumulating fundamentally-robust stocks on weakness for tactical plays with a longer-term view towards the recovery that will undoubtedly follow.

- Related story: Market Review ' The Agony And The Ecstasy (15 Dec 2011)

Sector Update

Timber ' Plywood inventory in Japan continues to de-stock Neutral

Sector Update

- Arrivals of imported plywood have picked up in Oct and Nov, although this was still low compared to monthly import volumes seen in the Mar-Aug period. Nevertheless, despite the pick-up in imports, de-stocking of plywood inventory in Japan is actually still on-going.

- However, we believe it would be premature to turn bullish on plywood prices at this juncture, as the outlook for plywood demand from other areas in Japan (excluding reconstruction) remains uncertain.

- There should be an increase in log supply after the end of the current seasonal wet weather conditions in Sarawak, but we think log prices will likely remain firm at current levels due to the still robust demand from India . For softwood logs, prices are currently weaker due to slower demand from China as its tightening policy since early of 2011 started to take effect.

- Maintain Neutral. Top picks are Jaya Tiasa and Ta Ann.

- Related story : Timber Sector Update ' Easing Plywood Inventory In Japan (6 Dec 2011)

Semiconductor ' Global chip sales slip again Underweight

Sector Update

- Although not entirely surprising, Nov chip sales slipped 3.1% yoy, its fifth consecutive drop on yoy basis. Furthermore, this was worse than the Oct drop of 1.8% yoy, and suggests no improvement yet.

- We believe the outlook for 1Q12 remains murky as there has not been any strong indication of a recovery. Although the weak outlook and supply disruption following the Thailand floods may have already been priced in, we believe there could still be downside risks in the coming quarters. We understand that several PC manufacturers have reduced their orders for components for 1Q12 shipments. While we have already imputed orders to pick-up in 2H2012, weaker-than-expected orders in the 1H2012 could result in downside to our earnings. This remains worrying as the PC segment accounts for 20-25% of revenue for local packaging players.

- Related story : Semiconductor Sector Update ' No Recovery In Sight Yet (27 Dec 2011); Semiconductor Sector update - Chip Sales Downtrend Continues (6 Dec 2011)

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