Last month, the local market as measured by the FBMKLCI experienced a pull-back to settle at 1,665.71 after hitting a high of 1,718.20 in mid-October. The profit-taking activities were within our expectations with the key index entering our Sell-on-Strength (SOS) level of 1,680-1,720 which is also deemed as the market’s overbought technical position. The correction also reflects investors’ sentiment following the relatively neutral-to-boring Budget 2016 coupled with the weakening Ringgit against USD and low crude oil prices. Going forward, we believe the market will face downside bias and trade within the range of 1,610-1,680 due to the lack of fresh catalysts. However, as we stepped into 3QCY15 results season, off-the-charts earnings surprises may help to spice up the market. Meanwhile, our OR tracker portfolio’s 5.8% MoM returns outperformed the FBMKLCI by 2.67%, extending our YTD appreciation to 10.5% from 5.3%. The average return between realised OR portfolio and unrealised OR tracker since inception has widened to 28.7% from its previous month of 27.5%, which still outpaced the barometer index’s total return of 12.3% by 16.4% over the same period.

Busy month with three Trading Buys. After two quiet months in August and September, we geared up our momentum in October to issue a total of nine On Our Radar (OR) reports. This includes three new “Trading Buy” ideas (JAKS, TP: RM1.53, LUXCHEM, TP: RM1.85, SKPRES, RM1.68), four “NOT RATED” pieces (KAREX, WELLCAL, VS and TMAKMUR) and an update piece on VITROX (TP: RM3.48). We like JAKS for its diversified business model and its impressive potential earnings growth of 387/28% for FY15/16E. Similarly, we favour industrial chemical supplier LUXCHEM for its earnings growth story and healthy balance sheet as a resilient play in this turbulent time. Lastly, we re-look SKPRES in view of emerging catalysts such as long-term contracts anchoring 2-year revenue CAGR of 82%, backed by positive spill-over from its major customer Dyson’s aggressive expansion plan. On the other hand, we have decided to take profit on MAGNI believing that the stock is fairly valued with all the positives already priced in.

Steady growth for OR tracker portfolio. We now have 28 OR stocks in our tracker list after a few additions last month. In October, our OR tracker portfolio bagged a 5.8% MoM gain, outperforming the FBMKLCI with MoM total return of 3.16%. Top performers were led by HHGROUP with a 24.7% MoM surge, followed by PWROOT and CAB, at 16.2% and 15.0%, respectively. On the broader market, the 30-stock index climbed to a high of 1,718.20 in mid-October, entering our Sell-on- Strength (SOS) level of 1,670-1,720. As expected, the FMBKLCI underwent profit-taking in the second half of the month following the strong market performance, to neutralise the overbought situation. Going forward, we expect the key index to face downside bias due to lack of fresh catalysts amid continuous weakening of the Ringgit against USD as well as tepid crude oil prices.

HHGROUP taking the lead again. After adding up the total 28 stocks in the OR tracker list as well as 67 stocks in the realised portfolio, the average total return since inception has expanded to 28.7% from the previous month’s 27.5%, With this, our total portfolio has continued to outperform the FBMKLCI, by 16.4% since inception. Supported by strong share price performance last month, HHGROUP once again topped the unrealised gain list with unrealised gain widening to 107.6%. This is followed by XINHWA (+74.3%) and ULICORP (+67.5%). On the other hand, PELIKAN was the worst performing stock with unrealised loss of 28.5% since inception. Meanwhile, even though we have taken profit on MAGNI on 29 October to bag a 35.0% gain, PESTECH (+218.9%) remained the top realised gainer, followed by VS (+193.6%) and GADANG (+136.7%). On the contrary, K1 topped the worst performer list with a total realised loss of 59.8%, followed by KGB (-27.9%) and GUOCO (-23.9%).

Source: Kenanga Research - 5 Nov 2015