The local market is expected to face a healthy correction, after making a new all-time high last week, in view of the lack of fresh leads. Should there is any pullback in the near term, we expect the strong buying interest to emerge when the benchmark index trade at 1,835-1,842 range. We have disposed all our SKPRES-WA shares on last Wednesday, making a hefty gain of 110% return over the 2-week investment horizon. The strong return in SKPRES-WA has helped us to record another milestone last week with the THEMATIC and GROWTH portfolios YTD total return exceeding the 20% mark for the first time in 2014. Our DIVIDENT YIELD Portfolio YTD total return, meanwhile, also recorded a double-digit growth of 12.8%, which outperformed the FBMKLCI total return of 4.1% over the same period. Post the disposals of SKPRES-WA, our portfolios have performed mixed on a WoW basis where the THEMATIC and GROWTH portfolios continued to outperform by 57-174 bps while the DIVIDEND YIELD dipped -2.25% WoW.
Expecting a healthy pullback. The FBMKLCI has crossed its key resistance and made a new all-time high last week at 1,892.33. While readings from the indicators showed that the FBMKLCI is in a bullish stage, the near-term upside could be limited due to (i) current PER multiple approaching ceiling valuation; (ii) discount between FBMKLCI & its consensus approaching +1 Standard Deviation; (iii) seasonally weaker (if not weakest) in 3Q; and (iv) lack of catalysts and lower economy growth in 2H. Meanwhile, the historical volatility charts of the FBMKLCI have converged and recorded near the historical low. Based on our earlier historical volatility study, the FBMKLCI volatility tends to spike (meaning consolidation/correction) when its historical volatility lines trade near the historical low. Having said that, despite these toppish signs, the strong excess liquidity in the banking system coupled with continued foreign inflow could continue to cheer the market. Should there is any pullback in the near-term, we expect the strong buying interest to emerge when the FBMKLCI trade at 1,835 – 1,842 range (a 6% discount to the consensus FBMKLCI target of 1,952 as well as ours (at 1,960)).
Making a new all-time high. A series of positive economic data from the key regional markets coupled with the continued foreign capital inflow spurred the FBMKLCI break out of its key resistance level and closed at a new all-time high of 1,892.33 last Tuesday. The bullish sentiment, however, was dented by the rising geopolitical tension in Iraq subsequently, which pushed the 30-stock index lower -0.25% WoW to 1,880.93, 11 points shy from its all-time high level. PUBLIC BANK (-3.2% WoW), GENTING (-1.8% WoW) and FELDA (4.7% WoW) were the top three index laggards in last week while the movers were TNB (+2.1% WoW), SIME (+1.4% WoW) and AXIATA (+1.0% WoW). On Wall Street, US stocks retreats on last week on Iraq worries despite the country’s economy continued to show signs of improvement based on the latest economic data.
Making another milestone. All our model portfolios making another milestone last week and recorded double-digit total return on a YTD basis with THEMATIC portfolio taking the lead (+21.3%), followed by the GRROWTH (+21.0%) and DIVIDEND YIELD (+12.8%) portfolios. Our model portfolios YTD gains have certainly outpaced the FBMKLCI total return of 4.1% during the period. The strong performance was mainly led by SKPRES-WA, which surged 110% in two-week to RM0.21/share before we realised our profits last Wednesday. Post the disposal, our THEMATIC and GROWTH portfolios still managed to beat the barometer index by 57 bps and 174 bps, respectively, while the DIVIDEND YIELD suffered -2.25% WoW loss due to the weak share price performance in MITRAJAYA (which dipped by -5.5% WoW to RM0.86 as a result of profit taking).
A superior 110% gain in two-week! We have sold all our 80k SKPRES-WA shares @ RM0.21/share each from all the portfolios last Wednesday. With the disposal, we have made a superior profit of RM8.8k or 110% gain over the two-week investment horizon. We believe the SKPRES-WA has ran way ahead of the fundamental in view of its latest step-up warrant exercise price of RM0.55 (from RM0.45 previously) which took effect last Friday. This implied the SKPRES-WA should be only worth about RM0.11/share, based on the Black Scholes Option Pricing model. As a result, we will advise investors to switch from the warrant to its underlying share (SKPRES) with an aim to enter at below RM0.50/share. We valued SKPRES at RM0.57 (please read our On Our Radar report dated 26-June for more detailed information) based on a targeted FY15 PER of 12x, in-line with its 3-year historical average PER and the FBMSC FY15 PER.
Source: Kenanga
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