Despite major US indices climbing to fresh records these past weeks, sentiment on the local stock market had instead taken an opposite turn. Foreign funds’ selling aside, investors have had to contend with falling oil prices that have beaten down Oil & Gas stocks while being guarded against taking larger positions ahead of the Rayaextended weekend. Nevertheless, near-term catalysts could be window dressing activities as the 1st half of the year comes to an end next week. Beyond that, we maintain our conservative view and continue to favour a Buy-on-weakness strategy on laggard and defensive plays should the key index dip below 1,735 during the seasonally tough third quarter ahead. In today’s batch of Naga Warrant listings, Equity Derivatives is offering a contrast of winning stocks and beaten down counters as additional trading tools. These 12 Structured Warrants comprise of AEON-CJ (strike: RM2.50), AIRPORT-CU (strike: RM9.50), GDEX-CG (strike: RM0.80), GENM-C27 (strike: RM6.00), LAFMSIA-CD (strike: RM6.00), MAGNUM-C2 (strike: RM1.80), MFCBCB (strike: RM4.00), MYEG-C20 (strike: RM2.60), OLDTOWN-CB (strike: RM3.00), POS-C10 (strike: RM5.50), SUPERMX-C28 (strike: RM2.20) and TALIWRK-CC (strike: RM1.60).

Structured Warrants Commentary

Within this batch of Naga Warrant issuance, we see potential for GDEX-CG, GENM-C27, AIRPORT-CU and MFCB-CB to attract some trade should a pullback in share prices present the opportunity. As for technical plays, we also like MYEG-C20 and potentially LAFMSIA-CD for investors who are interested to trade on a relief rebound. For GDEX (UP; TP: RM0.48), the company recently posted its 9M17 earnings which grew 18% on healthy parcel delivery demand from e-commerce. Although still trading at lofty valuations, investors can look forward to its secondary sorting hub which is set to commence operations in 2H18 while further inorganic growth remains a likelihood given the recent private placement. Meanwhile, we recently ascribed a higher target price on GENM (MP; TP: RM6.00) from RM5.66 after rolling over our valuation base year to CY18. While the main attraction- 20th Century Fox Theme Park will only be ready by end-2017, the RM10.4b GITP development has been progressively opening the retail space, restaurants and casino floor since end-2016, which should contribute to the bottom-line. In fact, we see the upcoming quarters to be stronger given the launch of non-VIP floor at SkyCasino in end-March and VIP floor in 3Q17.

AIRPORT (UP; TP: RM8.38) strikes us as more of a technical play than fundamentally-driven one given the limited upside from our valuation standpoint. Our target price of RM8.38 is based on a FY18E PBV of 1.74x (+1.5 SD), already upgraded from 1.58x in May. That being said, we expect the strong recovery in passenger traffic to continue in Turkey as well as increasing demand for travel in Malaysia given the increased capacities by airlines. Although we do not have active coverage on MFCB, the stock currently has a consensus target price of RM4.48 with an

OUTPERFORM rating. This represents a meaty upside of 22% from yesterday’s closing price. Of note, MFCB registered a 9.1% YoY increase in its recent 1Q17 earnings, led by both power and resources segments. Given the current construction progress of 23% (year-end target of 45%-50%), more construction profits are anticipated to kick in for the coming quarters. These 12 structured warrants are priced with a range of +/-13% moneyness. All the warrants issued are European Styled Non-Collateralised Cash Settled Warrants with a tenure of 7 months. The gearing ranges from as low as 3.9x to as high as 13.8x and the conversion premium ranges from 9.2% to 38.0%. Call-warrants are leveraged instruments. For instance, by participating in AIRPORT-CU, an investor is exposed to a gearing of 13.8x. To be more precise, this call warrant offers up to 7.5x effective gearing for investors. We are projecting a short-term technical target price of RM9.45, implying a potential upside objective of 9.9% based on a closing price of RM8.60. Theoretically speaking, a 9.9% increase in the underlying price should translate to ~75% gain in AIRPORT-CU. This general estimate is applicable to other Naga Warrants as well.

Source: Kenanga Research - 23 Jun 2017