In tandem with market sentiment which recovered in a reaction to the extreme oversold situation as well as increased risk appetite by global investors as volatility declined, our tracker portfolio posted a monthly gain of 2.74% in March; a mere underperformance to the FBMKLCI’s total gain of 4.16%. The improved market sentiment was also helped by the recovery in both MYR against the greenback and crude oil prices. Having said that, lack of earnings catalyst and expensive market valuation remain as the two major deterrents to a meaningful rerating. As such, we still believe that the equity market is likely to remain on its roller-coaster ride in the short-term. Under such market conditions, we expect fewer OR ideas to be featured in the coming weeks. We take a more selective approach in stock picking in this range-bound trading-oriented market. Our preferred “Buy-on-Weakness” level is now <1,635 while “Sell on Strength” level is >1,725.

Slow trading. We had another quiet month in March where we issued only one “Trading Buy” stock with two “Not Rated” reports. We had a review on our Trading Buy stock, VITROX with higher fair value of RM3.95/share from RM3.48/share after we raised FY16E earnings by 14% on higher sales assumption and a stronger USD against the MYR. After a satisfactory FY15 which saw its core net profit inching up 2% to RM50.0m, FY16 earnings is expected to grow strongly by 32% to RM65.9m on broad-base growth from all business segments. The stock trades at an undemanding valuation of 12x against industry’s average of 15x. On the other hand, we issued Not Rated notes on MSM and CHINHIN as attractive valuations have yet to emerge.

A better month for the market. After starting the year 2016 with two months of losses, the FBMKLCI finally posted positive returns with 54.14pts or 3.25% MoM gain to settle at 1,717.58 at the end of March. This was driven by foreign funds buying as the exchange data shows that foreigners were the net buyers with total net inflow of RM6.08b in the month of March from a net buying position of RM433m in February. Buying was largely seen in big caps like GENTING, TENAGA and the major banks. In addition, MYR rebounded strongly to just below 3.90 per USD from 4.20 at the beginning of the month while crude oil prices also recovered substantially from early of the year, hovering at USD38-USD40/bbl during the month of March. All these were the positive factors that contributed to the improved market sentiment. Nonetheless, our OR tracker portfolio registered an average monthly return of 2.74%, which underperformed the barometer index’s total monthly returns of 4.16% in March. The gain in the tracker was led by stronger share prices of ECONBHD (+19.61%), SUNCON (+18.67%) and PTARAS (+15.00%) but clawed by the decline in PRLEXUS (-10.80%), HHGROUP (-8.99%) and PWROOT (-8.46%).

Overall tracker performance remained good. With no new addition in March, our OR tracker list is still maintained at 34 stocks. Together with 68 stocks in the realised portfolio, the average total returns for the tracker stocks (+12.47%) and realised portfolio (+32.06%) since inception was 25.52% which is higher than the FBMKLC’s +17.10% for the same period. KTC remains as the top performer under our OR tracker list with an unrealised gain of 153.33%, followed by ULICORP (+110.17%) and CAB (+73.12%) while MMSV was the top loser which fell 38.73% and MRNB (-29.90%) and HOHUP (- 27.82%) 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 - 7 Apr 2016