Yes, we are all getting excited over the 2014 FIFA World Cup this month. However, bear in mind, this may not bode well for equity market as statistics revealed that equity markets generally did not do well during the past several World Cup fever months, at least in terms of trading volume. Given the lack of near-term catalyst amid stretched valuations, the local market is expected to face some selling pressures in the coming weeks. Nevertheless, the ample domestic liquidity coupled with continued net foreign buying could provide some support to the market. We also believe buying interest could potentially emerge when the benchmark index approaches the 1,835/30 level which is at a 6% discount to the consensus index target. In May, the FBMKLCI inched up slightly by 0.10% against our OR tracker’s monthly gain of 2.53% while the average returns between realised OR portfolio and unrealised OR tracker since inception is 33.3% which outperformed the FBMKLCI’s total returns of 20.8%.

Added two new Trading Buys. In May, we issued a total of seven On Our Rader (OR) reports, which consists of six Trading Buys and one Not Rated. Of the six Trading Buys, we reviewed four existing Trading Buy stocks with two new featured stocks namely MITRA and LONBISC. We believe MITRA, which we value the stock at RM1.13/share, is an under-researched small-cap construction gem for its compelling valuation, record high orderbook of RM1.2b and 30%-50% explosive annual earnings growth next year. LONBISC (FV: RM1.18) has a proven 12-year uninterrupted profit track record since listing in 2002. We value the stock at only 10x PER, which is at a discount to FBMSC Index of 11x, making it an alternative play for consumer stock. While we keep our fair value unchanged on KGB (FV: RM0.68), we have upgraded our fair values on YEELEE (FV: RM2.10), VSI (FV: RM2.05) and TASCO (FV: RM2.79). On the other hand, the only Not Rated stock was BJFOOD after we switched our recommendation from Trading Buy to rationalize our OR stock coverage following a near-term challenging outlook. With this, we realised a loss of 7.9% since we first featured this consumer stock in Oct-13.

OR stocks outperformed the market. The local market had a relatively slow month in May with the FBMKLCI inching up 0.10% while the small cap index, FBMSC edged up only 0.27% over the month. However, our OR tracker portfolio registered a better return of 2.53% monthly. The outperformer of our OR tracker was mainly attributed to the newly featured MITRA (share price +14.0% MoM), SCGM (+11.6%) and EKOVEST (+10.8%) which raked in more than 10% monthly gains. However, this was mitigated by the biggest loser of the month, HOHUP with its share price declining 14.0% over the month. Share price of SCGM continued to its uptrend momentum following its improved results on operational efficiency. Besides, market talks had it that there is a prominent businessman eyeing to take over the company which further spiked buying interest in the stock. EKOVEST rebounded strongly after months of lacklustre performance while HOHUP declined on profit taking.

PESTECH remained the best ever OR stock. With our 22 OR tracker stocks and 33 stocks in the realised portfolio, the average total returns for the tracker stocks and realised portfolio since inception is 33.3% which outpaced the total return of the FBMKLCI of 20.8%. The top three best performers under our OR tracker in the month of May were (i) PIE (+95.7%), (ii) SBCCORP (+88.6%), and (iii) INARI (+84.1%) while PESTECH still topped the realised gain list with total returns of 218.9%, followed by GADANG (+136.4%) and MKH (+121.5%). On the flipside, the realised worst performers since inception were BONIA (-17.1%), MKLAND (-13.5%) and COCOLND (-12.2%). Given the recently concluded reporting season, we expect some revisions on existing Trading Buy stocks. The market may see much lower trading volume during World Cup Game and fasting month, but we will still be looking for new trading ideas to share with our readers. Stay tuned.

Source: Kenanga