In June, we featured six Trading Buy calls with three Not Rated stocks while MITRA was removed from the tracker list after we initiated research coverage on the stock. So far, we only posted 0.63% gain in June but this is still better than FBMKLCI’s -2.34%. The overall market in June was bogged down by the fast-softening MYR, on-going 1MDB saga and the external Greek debt crisis. In fact, 2Q15 recorded the worst ever performance in the past 10 years. The weak market sentiment does not appear to be subsiding as the Ringgit has just broke the previous pegged level of RM3.80 against the greenback. Under such market conditions, we are very careful in introducing new Trading Buy OR stocks in the coming weeks and may reassess existing trackers to maximise returns. We take a more selective approach in stock picking in this range-bound trading-oriented market. Our preferred “Buy-on-Weakness” level is <1,735 while “Sell on Strength” level is >1,810.

A busy month… We had another eventful month in June given that we issued a total of nine On Our Radar (OR) stocks out of which six stocks were rated Trading Buys while the remaining ones were Not Rated. Those in Trading Buy’s list are DOLPHIN (FV: RM0.78), SUNSURIA (FV: RM1.40), HARBOUR (FV: RM3.15), ECONBHD (FV: RM1.21), HERTAR (FV: RM1.57) and XINHWA (FV: RM1.02) while JCY, WEIDA and PRESBHD were Not Rated. On the other hand, we removed MITRA from our OR list after we officially initiated research coverage with a target price of RM2.35/share on this small-mid cap construction stock on 24 Jun. Although the share price has risen 151% since our first Trading Buy call in May 2014, we still see upside potential in this under-researched stock. The stock is trading at an undemanding forward PER of 7x compared to the small-mid cap contractors of 10x-14x. MITRA is expected to secure RM1b new jobs this year and backed by PBT margin that is above industry’s average at c.10% vs. 8%, earnings growth is set to be explosive at 47%/27% in the next two years. More importantly, it boasts a strong balance sheet, with net gearing of 0.2x vs. sector’s average of 0.5x, should provide more room to gear up for future growth.

But a tough month for market. The market in the month of June was fairly tough, which resulted in the 2Q15 ending up as the worst ever quarter in the past 10 years. This was mainly attributable to the on-going 1MDB saga, the fast weakening MYR and most importantly, the external Greek debt crisis which dogged overall market sentiment. Against this backdrop, the OR tracker portfolio registered an average meagre gain of 0.63% in June, from a 3.00% decline in May, but is still higher than the FBMKLCI’s total return of -2.34%. This was mainly led by the strong performance of ULICORP (+40.46%), after reporting 1Q15 net profit, which rose 15% YoY to RM4.7m. On the other hand, losses at PIE (-12.22%) and K1 (-11.48%) mitigated the overall upside gain. Share price of K1 continued to fall, suffering a 38% contraction in the previous month following dismal 1Q15 results.

HHGROUP the new best performer. With six new OR stock being introduced and MITRA removed from the list, our OR tracker list is now expanded to 24 stocks from 19 stocks previously. Together with 62 stocks in the realised portfolio, the average total returns for the tracker stocks and realised portfolio since inception is 29.02%. This outpaced the FBKLCI by 15.29% for the same period as the barometer index only posted total return of 13.73%. HHGROUP is now the new top performer under our OR tracker with an unrealised gain of 67.10% followed by PIE (+62.67%) and ULICORP (+59.93%) while K1 is the top loser which has plunged 46.53% since inception. Meanwhile, PESTECH (+218.90%) and VS (+193.55%) remain as top two performers while MITRA (+150.67%) replaced GADANG (+136.67%) as 2nd runner-up after we removed it from our tracker list as we started initiating research coverage on the stock. On the flip side, GUOCO (-23.9%), DELEUM (- 22.3%) and RUBEREX (-19.3%) remained as the top three losers.

Source: Kenanga Research - 7 Jul 2015