On the back of volatile market condition, our tracker portfolio posted a decline of 5.66% MoM in January which underperformed the FBMKLCI’s decline of 1.46%. The jittery market sentiment does not seem to be abating as market participants remain concerned with the depressed Crude oil prices while aggravated by the unsustainable MYR’s rebound against the greenback. Under such market conditions and the shortened trading window due to the holiday season this month, we expect fewer OR ideas to be featured in the coming weeks; 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 <1,620 while “Sell on Strength” level is >1,710.

A quiet month. We had another quiet month in January with only one (1) new “Trading Buy” idea, three “Not Rated” reports and one sector piece on Furniture Manufacturers. We believe APOLLO (FV: RM6.48), which we have a “Trading Buy” rating is an interesting stock to watch for its consistent earnings growth. A solid chocolate confectionery products and layer cake player, APOLLO is expected to see a record profit year in FY16. In addition, it boasts a strong cash pile of RM116m or RM1.46/share with zero borrowing. With 79% earnings payout, dividend yield is like to be >6%. Meanwhile, we had issued Not Rated reports on GADANG, KERJAYA and SEM (7-Eleven Malaysia). On the other hand, we see potential in the furniture industry given their: (i) high proportion of export sales, (ii) margin expansion, (iii) sector-wide capacity expansion, (iv) long-term growth riding on the TPPA, and lastly (v) healthy balance sheet. With this, we see potential in LATITUD (FV: RM9.55), LIIHEN (FV: RM4.01), POHUAT (FV: RM2.54) and SHH (FV: RM3.09).

A volatile month for market. The world started 2016 with jittery market sentiment, which saw major indexes tumbling heavily in the early part of January that was initially attributable to Chinese market plunging on fears of its economy slowing down while Crude oil prices dived briefly below USD30/bbl, the lowest in more than a decade. Back home, the MYR also depreciated closer to a new recent low of 4.50 per USD in mid-Jan. Having said, the decline in FBMKLCI of 1.46% MoM in January was not that severe as compared to the Chinese SSE’s plunge of 22.65% and SZSE of 26.83%, HSI of 10.18%, Nikkei of 7.96%, Dow Jones of 5.50% as well as STI of 9.28%. However, the OR tracker portfolio registered an underperformance by an average of 5.66% MoM decline in January as compared to the FBMKLCI decline of 1.46%, from +5.10% in December. This was led by the decline in HHGROUP (-20.66%), HOHUP (-16.51%) and JAKS (-16.13%). However, this was mitigated by gains in PTARAS (+4.55%), CAB (+4.46%) and APOLLO (+3.93%).

Overall tracker performance remained good. With the new addition of APOLLO, our OR tracker list is now expanded to 31 stocks. Together with 68 stocks in the realised portfolio, the average total returns for the tracker stocks (+10.98%) and realised portfolio (+37.17%) since inception was 28.97% which is higher than the FBMKLC’s +12.69% for the same period. KTC is the top performer under our OR tracker list with an unrealised gain of 166.67%, followed by ULICORP (+93.36%) and HHGROUP (+79.57%) while MMSV was the top loser with 36.68% decline and HOHUP (-28.63%) and MNRB (-25.74%) were the other two main losers. Meanwhile, PESTECH (+218.90%), VS (+193.55%) and MITRA (+150.67%) remained as the top three realised stocks in our tracker list. On the flip side, K1 (59.80%), GUOCO (-23.9%) and DELEUM (-22.3%) remained as the top three losers. 

Source: Kenanga Research - 4 Feb 2016