Last month, the local market as measured by the benchmark index underwent a rollercoaster ride just like any other equity markets across the world on concerns of weaker economic outlook mainly dragged by potential further slowdown in China. The 30-stock key index continued a strong rebound at the beginning of the month, recouping losses from the lows after the massive selldown in August. However, the buying momentum failed to sustain and the market eventually experienced a steep fall after hitting its one-month’s high at 1,681.54 in mid-September. We believe the market will continue to trade sideways within the range of 1,570-1,720 due to the lack of fresh catalysts. However, we also opine that the barometer index could have found its near-term floor as the negative factors such as: (i) continuous foreign outflow, (ii) lack of re-rating catalysts, and (iii) draining domestic liquidity could have been priced in. Meanwhile, our OR tracker portfolio’s MoM returns outperformed the FBMKLCI by 9.1%, recovering our YTD position to 5.3% from the red. The average return between realised OR portfolio and unrealised OR tracker since inception has widened to 27.5% from its previous month of 22.5%, which still outpaced the barometer index’s total return of 8.8% over the same period.

Slow month with no new Trading Buy. In September, we issued a total of seven On Our Radar (OR) reports, including five “NOT RATED” pieces (IFCAMSC, PETRONM, ALSREIT, NTPM and SCOMIES) and an update piece on VITROX (TP: RM3.48). We maintain our “Trading Buy” call on the stock for: (i) the healthy outlook of semiconductor sales and equipment spending, (ii) capacity expansion to accommodate future growth, and (iii) strong balance sheet as well as decent cash flow for dividends despite lowering the fair value to RM3.48 from RM3.84 post rolling over the valuation base to FY16E and earnings adjustments. On the other hand, we have decided to close position on K1 owing to weaker-than-expected network cameras demand and margin compression caused by product obsolescence. At the same time, we also featured two oil and gas counters, SCOMIES and PETRONM, for their favourable positions in oilfield maintenance player and the downstream segment amid low crude oil prices, respectively. However, both are currently in the Not-Rated category due to rich valuations.

Strong rebound from lows. We now have 26 OR stocks in our tracker list after closing our position on K1. Last month, our overall portfolio managed to demonstrate a strong rebound after the massive selldown amid a gloomy macro environment earlier in the month. The OR tracker portfolio bagged 9.9% MoM in September, outperforming the FBMKLCI which only registered a 0.8% MoM total return. Top performers were led by MAGNI with a 28.5% MoM surge, followed by XINHWA and MMSV, at 22.5% and 17.3%, respectively. On the broader market, the 30-stock index climbed up to a high of 1,681.54 in mid-September and then embarked on another round of steep fall to close at 1,621.04 on the last day of September, in tandem with most regional markets paring down from their one-month’s high on concerns of slower economic outlook.

XINHWA remained as top performer. After summing up the total 26 stocks in OR tracker list as well as 66 stocks in the realised portfolio, the average total return since inception has widened to 27.5% from the previous month’s 22.7%, continuing to outpace the barometer index by 18.7%. The top three gainers in the unrealised gain list remained the same with XINHWA continuing to lead with a gain of 78.6%, followed by HHGROUP (+66.5%) and ULICORP (+54.7%). On the flipside, SUNSURIA emerged as the worst performing stock with unrealised loss of 28.2% since inception. Meanwhile, as there is no profit taking 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, K1 topped the worst performer list after being sold on 1 September 2015 with a total realised loss of 59.8%, followed by KGB (-27.9%) and GUOCO (-23.9%). 

Source: Kenanga Research - 7 Oct 2015