We are now well into the seasonally weak 3Q while the outlook will likely remain tough for the rest of the year given the disappointing earnings report cards so far. In tandem with the earnings downgrades, we had cut our end-2014 index target to 1,910 from 1,960 and expect other houses to follow suit as well. While we do not rule out that the key index could surpass this target and test 1,980 in 2015 as per our Bottom-up Index Forecasting Model, we still prefer to stick with our earlier strategy, i.e. buy into weakness if and when the index retreats towards the 1,840/35-levels. Inline with the weak performance of the broader market in August, our OR tracker only registered 0.48% monthly gains, from +6.17% in July, which was still better than the total return of 0.11% posted by the 30-stock index. The average returns between realised OR portfolio and unrealised OR tracker since inception is 38.7% which outperformed the barometer index’s total returns of 21.2% for the same period.

A “property” month. We had another busy month in August; releasing four new trading ideas which are all property stocks. There were some accumulated trading interests in small property counters last month where we saw rotational plays in some small cap and penny stocks. As such, we featured four new trading ideas, such as GUOCO (FV: RM2.95), IWCITY (FV: RM3.39), KSL (FV: RM6.63) and MKLAND (FV: RM0.64). Meanwhile, we also issued two take-profit calls on IBHD and INARI as their share prices ran ahead of valuation. With that, we had booked in 112% gains in INARI and 29% profit in IBHD. On the other hand, we had also reviewed one of our existing On Our Rader (OR) stocks, VS with higher fair value of RM2.61/share from RM2.05/share. Besides solid earnings growth story, VS also offers an above average net yield of c.5% which is supported by its minimum 40% dividend payout policy.

Poor market condition but we are still okay. The local equity market had another slow month in August as expected with 3Q being a traditionally a weak quarter if not the worst. The FBMKLCI rebounded with a total monthly gain of 0.11% in the month of August from a 0.48 total monthly contraction the previous month. However, our OR tracker portfolio still managed to register a better monthly capital returns of 0.41% in August from +6.17% in July. This was mainly driven by gains in TASCO (+32.1%). MITRA (+11.9%) and HOHUP (+10.4%) but was clawed by PPH (-14.4%), PRTASCO (-10.4%) and ENCORP (-7.8%). We are not overly concerned with the slow performance in August as it is our view that 3Q is always a slow quarter. This was also one of the reasons we tried to trim our positions with two Take-Profit calls on IBHD and INARI. In fact, the small cap index, FBMSC lost 2.29% in August from a 6.57% gain in the previous month.

PIE again leads the OR tracker list. With four new Trading Buys and two Take Profit calls in August, we now have 26 stocks in our OR tracker list. Together with 39 stocks in the realised portfolio, the average total returns for the tracker stocks and realised portfolio since inception is 38.7%, down slightly from 39.4%, which still outperformed the FBMKLCI’s total return of 21.2% for the same period. Since we had realised our position in SCGM in July and INARI in August, the Top Gainer for the month of June, PIE is once again back at the pole position as the best performer under our OR tracker with an unrealised gain of 85.3%. This is followed by SBCCORP (+79.3%) and TASCO (+78.7%). Worth mentioning is TASCO as its share price jumped 32.1% MoM in August after it attracted interest by the institution funds although its fundamental was unchanged, for now. 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 sluggish 2QCY14 results report card, we expect more earnings and index-target downgrades in the coming weeks. For now, we remain selective in featuring new trading ideas.

Source: Kenanga