We are in the final month of 4Q in what was supposed to be a seasonally strong period but so far the market’s performance has been somewhat disappointing and the outlook for December does not look good. Our OR tracker posted a 4.1% capital loss in November against the FBMKLCI’s -1.7% and FBMSC’s 7.0%. This was due to the overall market sentiment hurt by the plunge in crude oil prices and last Friday’s Petronas announcement to cut capex also does not bode well for sentiment, especially for oil & gas stocks which saw share prices plunging more than half of their values. In addition, more brokers are expected to cut their index-target this week after the dismay 3QCY14 results season which just-concluded last week. Today, our strategist revised his year-end 2014 Index Target to 1,870 from 1,910, while year-end 2015 Index Target is cut to 1,950 from 1,980. We now adopt a “Buy On Weakness” strategy at a lower buying zone of 1,760-75, representing c.8.5% discount to Consensus Index Target of 1,925/40. This implies -1 SDlevel below the 5-year average discount of 5.5%.

Another “reviewing” month. Following the underperformance in October which led to a review, we are compelled to continue reviewing our existing OR stocks due to yet another lacklustre trading month in November. We released five OR reports with only one new stock, which was GUH with a Not Rated rating which we believe is fairly priced for now. We took the opportunity to lock-in some profit of 50.0% on FIBON after we removed the stock from our Trading Buy list to Not Rated as the stock became fairly valued. However, we shall relook the stock once the factoring and LogiCube businesses start to see meaningful earnings in the next 1-2 quarters. Meanwhile, we reviewed two of our existing Trading Buy stocks namely YEELEE and PPHB while we reassigned a new Trading Buy with fair value of RM1.64 on ECS from Not Rated as we believe this ICT stock will benefit from the implementation of GST next year.

Still a bad month… After a sharp decline of 18.6% in the month of October, our OR tracker portfolio posted another decline last month, dipping by another 4.1%. This is no thanks to our OR stocks, which are small caps in nature as this segment usually would be first hit in any market downturns. In fact, the FBMSC contracted 7.0% MoM while FBMKLCI fell 1.7% over the month. This sell-down has no signs of abating just as yet as the benchmark plunged 42.62pts to 1,778.27 yesterday, which is close to its 52-week low. The one-time favourite oil & gas stocks were the main casualty as the national oil company Petronas cut its annual capex by 15%-20% given the lacklustre crude oil prices and there is also no more new marginal oil fields for now. Overall, SBCCORP was the worst performer in our OR tracker portfolio with 22.2% decline in share value, followed by GOB (-14.1%) and GUOCO (-12.7%). Against the odd, MITRA posted the strongest month gain of 21.1% which was far superior to the second top performer PRTASCO which registered 6.5% monthly gains.

... but still so far so good. We still have 23 stocks in our OR tracker list after removing FIBON, which was replaced with ECS. Together with 46 stocks in the realised portfolio, the average total returns for the tracker stocks and realised portfolio since inception is 38.4%, down from the 41.3% gain in October which still outpaced the barometer index’s total return of 21.3% for the same period. Meanwhile, PIE remains as the top performer under our OR tracker with an unrealised gain of 92.9%. In fact, PIE still posted 1.6% monthly gain in November. On the other hand, VSI became the second largest gainer with unrealised gain of 75.1%, followed by MITRA with unrealised gain of 56.4% after a strong showing in November. Meanwhile, PPHB (-24.7%) replaced LONBISC (-24.0%) as top loser followed by IWCITY (-18.6%). 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 while RUBEREX (-19.3%) still topped the realised worst performer list followed by BONIA (-17.1%) and MKLAND (-13.5%).

Source: Kenanga