Last month, the local equity market declined by 3.2% MoM dragged by weakening of Ringgit against USD led by Donald Trump’s surprise victory in the US presidential election as well as disappointing a 3QCY16 results season. Subsequently, our 12-month FBMKLCI’s end-2016/17 target was lowered to 1,682/1,732 from 1,715/1,755 post results season as we see no immediate re-rating catalyst emerging at the moment despite the seemingly undemanding market valuation. Technically, while we expect the FBMKLCI to trade sideways within 1,620-1,640, we also view that buying support may emerge around the 1,600-1,610 zone backed by the year-end window dressing activities. In line with broader market, our OR tracker portfolio’s returns was also down by 5.4% MoM, widening our YTD-end November position to -5.5%. Having said that, the average returns between realised OR portfolio and unrealised OR tracker since inception of 18.8% still fared better than the barometer index’s total return of 12.8% over the same period.

Three trading buys. In November, we issued three Trading Buy reports and one Not Rated report on CCMDBIO (NR; FV: RM1.96). For our Trading Buys, we are positive on REACH (TB; FV: RM0.89), which successfully graduated from SPAC status to unlock its value from the proposed acquisition of Kazakhstan on-shore O&G asset. On the same day, we also issued a piece on SCICOM (TB; TP: RM2.45), riding on: (i) long-term contracts (avg. 2-3 years) for Business Process Outsourcing, (ii) incremental growth from the E-Government Service segment, and (iii) minimal downside risk due to a well-diversified client base. We also called a Trading Buy on PESONA (TB; TP: RM0.435), a small cap contractor venturing into the concession business. Subsequently, the share price rallied and exceeded our target price and hence we decided to Take Profit on the stock, bagging a gain of 12%. Meanwhile, we also closed position on PRLEXUS with the fading odds of TPPA materialising which could weaken its Vietnam expansion and US demand growth.

A bad red month. After the adjustments, we now have 47 OR stocks in our tracker list. Last month, the overall portfolio was hit hard (-5.4% MoM) by the massive sell-down, in tandem with the poor performance of local bourse. Worst performers were led by oil and gas counters, EATECH and KNM with a 37.4% and 22.5% MoM decline, respectively, largely due to disappointing results. Meanwhile, the FBMKLCI declined by 3.2% or 53.3pts MoM to 1,619.1 in November, widening the YTD-end November losses to -4.3%. The barometer index lost its momentum to a low of 1,616.1 following the weakening of Ringgit against USD led by Donald Trump’s surprise victory in the US presidential election.

XINHWA re-emerged as top performer. Although the average total return since inception has weakened to 18.8% from the previous month of 21.4%, it still outperformed our barometer index by 6.0% over the same period. This is after summing up the total 47 stocks in OR tracker list as well as 74 stocks in the realised portfolio. XINHWA topped the unrealised gain list with a MoM gain of 75.5% followed by CAB (+72.04%). Last month’s top gainer, KTC fell to 2nd runner up position (+56.7%) after the share price tanked 21.7% within one month. Meanwhile, as there is no significant gain in the past month, PESTECH (+226%) is still the top realised gainer, followed by VS (+205%) and MITRA (+153%). On the contrary, the top three losers are K1 (-60%), SAPRES (-36%) and GUOCO (-24%).

Source: Kenanga Research - 13 Dec 2016