Last month, equity markets across the world went through volatile trading sessions, which saw most bourses turning into YTD declines. The local benchmark index managed to recoup some losses suffered during the earlier part of the month by rebounding back to close at 1,612.74 on last day of August. However, the outlook will likely remain tough amid prevailing uncertainties such as gloomy regional market, depressing MYR and crude oil prices as well as weaker consumer sentiment. Yesterday, our 12-month FBMKLCI’s target was lowered to 1,680 from 1,810 after factoring in the 2QCY15 reporting season which was another disappointing quarter. The target objective of 1,680, nonetheless, still implies PERs of 19.3-17.3x on our FY15-16E earnings estimates which is still at the higher end of FBMKLCI's historical PER bands. Despite lower upside potential, we believe it is a good time to nibble on selective stocks, as a temporary bottom could have been formed after the key benchmark hit a low of 1,503.68. Meanwhile, our OR tracker portfolio’s MoM returns underperformed the FBMKLCI by 9.8%, dragging our YTD position to -6.2%. Having said that, the average returns between realised OR portfolio and unrealised OR tracker since inception of 22.9% still fared better than the barometer index’s total return of 8.0% over the same period.

Cautious with only one Trading Buy. In August, we issued a total of seven On Our Radar (OR) reports, including one Trading Buy call (MAGNI, TP: RM5.15) and four NOT RATED pieces (HUPSENG, DNEX, KAWAN and SCGM). We like MAGNI for: (i) its resilient business model, which is unaffected by weak local sentiment, (ii) better margins aided by the stronger USD and cheaper raw material, and (iii) net cash position coupled with decent historical dividend payout. However, the stock slid 3.8% thereafter to close at RM4.04 beset by poor investors’ sentiment. On the other hand, we have decided to close position on EKOVEST and KGB owing to lack of orderbook replenishment and earnings disappointment caused by projects delay, respectively. At the same time, we continue to introduce new trading ideas by featuring two food manufacturers with resilient business model, KAWAN and HUPSENG. Both are currently in the Not-Rated category due to rich valuations.

A bad red month. After the adjustments, we now have 26 OR stocks in our tracker list. Last month, the overall portfolio was hit hard by the massive selldown with all our stocks sliding into the red amid a gloomy macro environment. The 15.8% MoM loss underperformed the FBMKLCI which was down 6.0% in the month of August and reversed the earlier gain to a YTD position of -6.2%. Worst performers were led by both HOHUP and K1 with a 28.6% MoM decline each, followed by MMSV and CENTURY, at -23.7% and -23.5%, respectively. On monthly performance basis, the 30-stock index started at 1,723.14 level and experienced a steep fall to a low of 1,503.68 clouded by both external and internal woes. It then rebounded and found a foothold above the 1,600 key psychology level to settle at 1,612.74 on the last day of August.

XINHWA emerged as top performer. Although the average total return since inception has weakened to 22.9% from the previous month’s 28.8%, it still outperformed our barometer index by 14.9% over the same period. This is after summing up the total 26 stocks in OR tracker list as well as 65 stocks in the realised portfolio. XINHWA topped the unrealised gain list with a gain of 45.7% whilst HHGROUP (+44.0%) dropped to 1st runner up after the share price tanked 21.4% within one month, followed by ULICORP (+43.0%). On the flipside, K1 remained as the worst performing stock with unrealised loss widening to 60.4%. Meanwhile, as there is no significant gain in the past month, PESTECH (+218.9%) is still the top realised gainer, followed by VS (+193.6%) and GADANG (+136.7%). On the contrary, KGB topped the worst performer list after we sold it on 26 August 2015 with a total realised loss of 27.9%, followed by GUOCO (-23.9%) and DELEUM (-19.3%). 

Source: Kenanga Research - 3 Sep 2015