The recent decline of the local stock market is providing a great entry opportunity for investors in view of its oversold situation. Our range-trading view remains unchanged and we believe the local market will still be trapped in a wide trading range. Thus, we advocate investor to continue with the strategy of Buy-On-Weakness/Sell-On-Strength at 1,635/1,725 level. Investors should also focus on blue-chip counters that are dampened by the recent weak market sentiment, i.e. MAYBANK (OP, TP: RM9.33), RHBCAP (MP, TP: RM6.58), and DIGI (MP, TP: RM5.05). Moving forward, our On Our Radar’s mid-and-small cap stocks recommendations will continue to focus on undervalued thematic plays. Meanwhile, our OR tracker portfolio’s -1.9% MoM returns in April outperformed the FBMKLCI’s total return of -2.5%.

Recommended five stocks in April. In April, we issued a total of five OR reports, which consists of one Trading Buy call in KNM (TP: RM0.57) and four Not Rated (SCGM, ECONPILE, PECCA, and EVERGN) reports. Note that we have removed ECONPILE from the Trading Buy list to Not Rated (FV: RM1.41) in view of its rich valuation. Despite our fairly optimistic view on KNM (underpinned by its recurring income business model and exposure in the downstream O&G segment, which is less affected by oil prices), its share price performance has not favoured us so far and went c.5% lower since we first recommended it in 12-April 2016.

Renewal global growth concern dampened sentiments. Despite firmer oil prices and the clearer signal from the US Federal Reserve on interest rate policy, the local market has been preoccupied with negative news flow from 1Malaysia development, which triggered a cross default in late-April, following a missed coupon payment on notes of USD1.75b. The headline news on 1MDB remained as one of the major concerns for both local and foreign investors, causing the barometer index shedding 2.63% or 45.10pts MoM to settle at 1,672.72 at end- April 2016. On the external front, the Bank of Japan left monetary policy steady in its end-April meeting, surprising several market players who were widely expecting a hefty dose of stimulus. Global major equity indices resumed their downward trend in late-April, amid rekindled angst over the sluggish pace of global growth and an uninspiring flow of U.S. corporate earnings so far. On a YTD (as of end 4rd-May) basis, the local benchmark index deteriorated by 2.06%, no thanks to the persistent price war between the telecom players, causing the country’s top three mobile incumbents’ share price to retreat by 13%-19% which wiped out a total 32pts from the benchmark index.

Overall tracker performance remained decent. With additional new stock added coupled with the removal of ECONPILE from the portfolio, our OR tracker list is maintained at 34 stocks. Together with 68 stocks in the realised portfolio, the average total returns for the tracker stocks and realised portfolio since inception (13-Aug- 2012) is 24.6%, which clearly outpaced the FBMKLCI’s total return of 13.5% for the same period. For the month of April, the OR tracker portfolio suffered losses of 1.9% in tandem with the overall weak market performance but still managed to outpace the FBMKLCI’s total returns of -2.5%. Top performers were PWF CONSOLIDATED with a handsome 12.6% gain in April, followed by PROTASCO and MMS VENTURES, at 10.4% and 6.4%, respectively. 

Source: Kenanga Research - 5 May 2016