We experienced a volatile month in October in what was supposed to be a seasonally strong 4Q. Although market sentiment has recovered strongly from the poor start in 4Q, we expect the broader market to pull back technically in the immediate term to 1,825-1,830, as FBMKLCI is fast approaching the overbought zone. However, strong US corporate earnings and encouraging economic data should lend support to the local market while the local 3QCY14 earnings reports season which so far is satisfactory, especially TENAGA which reported impressive results, should boost buying interests post technical correction. In the coming weeks, corporate earnings will remain the key focus and it would set the tone for earnings outlook for next year. In line with the weak sentiment for small cap and third liners, our OR tracker registered a 4.53% loss in capital in October; this is against the FBMKLCI’s +0.48% and FBMSC’s -5.20%. The average returns between realised OR portfolio and unrealised OR tacker since inception is 41.3% in October, which outperformed the benchmark index’s total returns of 21.3% for the same period.
A “reviewing” month. In the volatile of trading month of October, we took this opportunity to review some of the underperforming OR stocks. We changed the call on MAGNI to NOT RATED, resulting in a loss of 4.1%, due to limitation in earnings visibility as we were having difficulty in access to the management. We also put a NOT RATED rating on RUBEREX, due to lack of interest on the stock, and reported a 19.3% loss in share price since our first report released in Nov 2013. On the other hand, due to weaker set of results as well as potential dilution from a private placement, we decided to Take-Profit on ENCORP with 24.1% gain in share price since Aug 2013. Meanwhile, we also introduced two new TRADING BUYs; PELIKAN (FV: RM1.55) for its turnaround story and the undiscovered gem MNRB (FV; RM4.60). We also reviewed VSI and KGB with higher fair values of RM3.16 and RM0.52, respectively. Lastly, we removed PMETAL from our Trading Buy tracker as we had initiated coverage on the stock on 3 Oct with an OUTPERFORM call at TP of RM8.87/share.
We had a bad month… Although the FBMKLCI registered a total return of 0.71% with capital gains of 0.48% in October, the local market had gone through a volatile period where in the first half of the month, heavyweight as well as small and third liners faced heavy sell-downs, the all-time favourite oil & gas stocks got bashed down, which saw their share price tanking as much as 20%-30%. In fact, the benchmark hit its 52-week low of 1,767.77 in the middle of the month. However, since then, investors snapped the bashed down blue chips in the second half of the month which helped push the index northbound. Given that smaller cap recovery was not as fast as the bigger cap, our OR tracker portfolio posted a monthly capital loss of 4.53% in October, which was slightly better than the FBMSC which lost 5.20% over the month. FIBON was the worst performer in our OR tracker portfolio, which saw its share price contracted 18.6% over the month. Other main underperformers were LONBISC (-13.3%) and PPH (-12.4%) while MNRB (+8.1%) and PIE (+4.7%) were the two better outperformers.
... but still not that bad though. With two new Trading Buys and four stocks removed from the tracker to realised portfolio in October, our OR tracker list is down to 23 stocks. Together with 45 stocks in the realised portfolio, the average total returns for the tracker stocks and realised portfolio since inception is 41.3%, down slightly from 41.7% in September, which still outperformed the FBMKLCI’s total return of 21.3% for the same period. PIE remains as the top performer under our OR tracker with an unrealised gain of 89.8% while SBCCORP (+87.3%) came in second followed by VSI (+70.2%). Meanwhile, LONBISC (-21.9%), PPH (-17.9%) and PRTASCO (-17.1%) are the main losers in our OR tracker. Meanwhile, as there was no significant realised gain in the past months, PESTECH (+218.9%), GADANG (+136.4%) and MKH (+121.5%) still topped the realised gains list. On the other hand, RUBEREX now topped the realised worst performer list with 19.3% realised loss, followed by BONIA (-17.1%) and MKLAND (-13.5%).
Source: Kenanga