Last month, in tandem with stronger global equity performance led by US equities, the local benchmark index’s total return increased by 1.7% MoM following a better 4QCY16 results season. Looking forward, we continue to believe that the FBMKLCI could still be trapped in a range-bound mode despite the consensus index target showing signs of turning around. Our end-2017 index target has been revised up to 1,750 (from 1,732 previously) post adjusting our model based on the Bottom-Up Approach. For now, an ideal "Sell On Strength" (S.O.S.) area is at >1,720 while ~1,655/25 will be a decent "Buy On Weakness" (B.O.W.) zone. Technically speaking, based on the closing level of 1728.66, the FBMKLCI’s support could be found at 1,720 (S1) and 1,700 (S2) while the key resistance levels are seen at 1,744 (R1) followed by 1,774 (R2). In line with broader market, our OR tracker portfolio’s return was also up, by 2.5% MoM, widening our YTD-end February position to 8.7%. The average return between realised OR portfolio and unrealised OR tracker since inception of 23.0% still fared better than the barometer index’s total return of 18.7% over the same period.

A quiet month. We issued five On Our Radar (OR) reports in February with one Trading Buy and four Not-Rated pieces. We reiterated our Trading Buy call on KESM with higher fair value of RM12.18 following an upgrade in earnings, driven mainly by: (i) rising auto vehicles production by global automakers with increased chip content, (ii) margin expansion due to greater economies of scale, and (iii) acceleration of CAPEX plans in the current financial year to meet the existing demand. On the other hand, we closed position on PELIKAN (FV Range: RM0.88- RM1.00), HARBOUR (FV: RM0.85) and HOHUP (FV: RM0.84), switching our call from Trading Buy to Not Rated with lower fair values. Meanwhile, we also issued another Not-Rated note on the new IPO, SERBAMK (FV: RM1.73) which debuted on 8 February. The experienced O&M services specialist is expected to maintain its growth trajectory backed by continuous expansion of its O&M services and EPCC segments in the overseas market and generate stable recurring income via asset ownership.

FBMKLCI up by 1.7% MoM. US equities continued to record multiple higher highs in February after surpassing its 20,000 threshold at the end of January. On the local front, the benchmark index, FBMKLCI also followed its footstep to climb up to a high of 1712.58 on February 20 but consolidated thereafter to end at 1,693.77, narrowing its monthly total gain to 1.7%. GENTING (+12.8%) was the main index gainer last month largely spurred by: (i) its excellent financial results beating consensus expectations, (ii) improving outlook from new Japan's market opportunity, and (iii) its GITP expansion program. This was followed by MAYBANK (+4.6%) and IOICORP (+6.1%). We continue to believe that FBMKLCI could still be trapped in a range-bound mode despite the consensus index target showing signs of turning around. In fact, our end-2017 index target has also been revised up to 1,750 (from 1,732 previously), due to higher index target as per our Bottom-Up Approach. For now, an ideal "Sell On Strength" (S.O.S.) area is >1,720 while ~1,655/25 is seen as a decent "Buy On Weakness" (B.O.W.) zone. On our OR Tracker Portfolio, the tracker portfolio posted an average return of 2.5%, which outperformed the benchmark index’s total returns, mainly led by SUCCESS (+30.6%), SUNSURIA (+27.0%) and PWF (+15.1%). Nevertheless, it was offset by losses in JAKS (-16.3%), PRTASCO (-13.5%) and KNM (-10.1%).

Still outperformed the market. After removing PELIKAN, HARBOUR and HOHUP, our OR tracker list has been reduced to 41 stocks. Together with 82 stocks in the realised portfolio, the average total return for the tracker stocks (+18.2%) and realised portfolio (+25.4%) since inception in Aug 2012 is 23.0%, which is higher than the total return of 18.7% from the FBMKLCI for the same period. KTC (+80.0%) is the top performer under our OR unrealised tracker list is followed by SALUTE (+79.8%) and XINHWA (+77.5%) while the top three losers, on the other hand, are EATECH (-51.7%), KNM (- 37.4%) and MMSV (-21.2%). Meanwhile, PESTECH (+225.9%), VS (+204.5%) and MITRA (+153.0%) remain as the top three realised stocks in our tracker list. On the flip side, K1 (-60.4%), SAPRES (-36.5%) and HOHUP (-32.7%) are the top three losers.

Source: Kenanga Research - 8 Mar 2017