The local equity market is expected to remain in a range-bound trading mode but with volatile mood swings as a result of the prevailing unfavourable local and macro factors (i.e. volatile crude oil prices and weak Ringgit against USD). Thus, a range trading-oriented play (Buy on Weakness at FBMKLCI <1,600 and Sell-on-Strength at >1,690) is still the preferred strategy in the 1Q16. Our tracker portfolio recorded a flattish performance in February, which outpaced the FBMKLCI’s decline of 0.43%. Moving forward, we will continue to adopt stringent stock picking criteria in introducing new Trading Buy OR stocks and reassess existing trackers to maximise returns.

A season greeting month. We merely issued four (4) On Our Radar (OR) reports during the eventful month in February, which include three TRADING BUY calls on SUPERLN (FV: RM2.03); ELSOFT (FV: RM2.12); and BPPLAS (FV: RM2.15) as well as a company update report on PETRON (NOT RATED, FV: 7.50). SUPERLN, a leading insulator manufacturer, has performed well with share price advancing by 5.1% since our recommendation. We continue to favour SUPERLN in view of its: (i) strong growth prospect (+55%/+7% NP growth in FY16E/FY17E), (ii) sustainable profit margins, and decent dividend yield. ELSOFT, on the other hand, performed relatively flattish despite its net profit is expected to grow 20% YoY in FY16 and being a direct proxy to the growing segments of the semiconductor sector. Meanwhile, similar to other export-based plastic packagers, BPPLAS is riding on the wave of higher revenue, mainly driven by export sales and lower resin prices. Coupled with stronger EBIT margins ahead, we projected the group to record earnings growth of 25%/24% for FY16E/FY17E.

A zigzag performance. The performance of the FBMKLCI last month played out as per our earlier prediction where the index continued to be stuck in a wide trading range with zigzag fluctuations on concerns over the highly volatile oil prices as well as the uninspiring local corporates’ earnings report cards. Investors around the world panicked when oil prices plummeted to a 13-year low of USD26.05 a barrel on 12 February but seemed to have recovered after OPEC, Saudi Arabia, Russia and other producers agreed to a tentative deal on February 17 to freeze output. The massive surge in oil prices (c.30% thus far) from its recent low reflects a swing in sentiment, causing the Dow Jones and S&P 500 to experience a Vshape performance last month. The local benchmark index, meanwhile, also performed in tandem with the regional peers and swing by as much as 3.4% in February before settling at 1,654.75 (-0.78% MoM or 13.05 points). MYR appeared to have found a new base and weakened merely by 1.3% MoM to RM4.20. Our OR tracker portfolio, meanwhile, registered a flattish performance in February as compared to the FBMKLCI decline of 0.43% on a total return basis. On a YTD basis, our OR tracker portfolio recorded a mild loss of 0.05% but still outpaced the benchmarked index by 85bps.

Continued to outpace the FBMKLCI since inception despite escalating market volatility. With the new additions of SUPERLN, ELSOFT and BPPLAS, our OR tracker list is now expanded to 34 stocks. Together with 68 stocks in the realised portfolio, the average total returns for the tracker stocks (+8.42%) and realised portfolio (+32.0%) since inception was 24.2% which is higher than the FBMKLC’s +15.5% for the same period. KTC is the top performer under our OR tracker list with an unrealised gain of 136.7%, followed by ULICORP (+95.6%) and CAB (+84.9%) while MMSV was the top loser with 40.6% decline followed by HOHUP (-31.5%) and MNRB (-28.4%). Meanwhile, PESTECH (+225.9%), VS (+204.5%) and MITRA (+153.0%) remained as the top three realised stocks in our tracker list. On the flip side, K1 (-60.4%), GUOCO (-24.0%) and DELEUM (-22.3%) remained as the top three losers. 

Source: Kenanga Research - 8 Mar 2016