As we enter the traditionally weakest quarter of 3Q, despite the reversal of buying interest in the second half of June, we are now more cautious and prefer to take a conservative approach or defensive mode. As such, a “Buy on Weakness” is a preferred strategy as and when the index corrects to 1,750/20. Nonetheless, we have recently raised our end-2017 index target to 1,850 from 1,845. Having said that, the local market momentum is still in a bearish state technically with the key index remaining below its 50-day SMA. The near-term support levels are at 1,754/1,760 while resistance levels remain at 1,771/1,795 where sellers are likely to sell on strength. Meanwhile, our OR tracker portfolio is leading the broader market with total returns of +2.45% in June against FBMKLCI’s +0.01%. The average returns between realised OR portfolio and unrealised OR tracker since inception of 29.68% still fared better than the barometer index’s total return of 24.94% for the same period.

Another housekeeping month. We had a busy month in June in which we released a total of six reports to review our tracker list. We reviewed LUXCHEM (TB; FV: RM2.30) with a higher fair value of RM2.30 from RM1.85 which we released our first report in Oct 2015, as we believe the recent recovery in glove markers’ prospects appear to have some trickle-down effects on previously out-of-favour chemical company like LUXCHEM. This is because half of its business is derived from the glove sector. Going forth, it should benefit from more sector-specific catalysts in the near term such as the listing of LCTITAN, a full-year contribution from the TMSB acquisition as well as fresh plans to expand its manufacturing capacity by 30% at Malacca and Perak plants by year end. Meanwhile, we closed five OR positions as we believe these stocks were fairly valued for now, namely KTC, KNM, JAKS, HEKTAR and EATECH.

N-shape performance last month. After a first monthly decline for the year in May, the local market started the month of June with a positive tone, especially in the first half the month which saw FBMKLCI hitting its 2-year high, in tandem with the US market as all the three key indexes recorded fresh all-time-highs. The continued inflow of foreign funds helped to push MYR against the USD to 4.25-level from 4.30-level. Coupled with a surprise GDP data and improving 1CY17 corporate earnings, all these were the catalysts for the buoyant market sentiment in the first half of June. However, the local market turned south-bound in the second half of the month on fears of interest hike as other central banks were hinting of higher interest rates. Meanwhile, MYR also started to weaken against the greenback to 4.30-levels toward the end of the month. At the end of June, the key index fell slightly by 2.20-pts or 0.12% to settle at 1,763.67. On our OR Tracker Portfolio, the tracker portfolio posted an average monthly return of 2.45% which outpaced the benchmark index’s total returns of 0.01%, mainly led by VITROX (+40.14%), LUXCHEM (33.97%), and ELSOFT (11.11%)

Overall tracker performance still not bad. With the closure of five OR stocks mentioned above from the tracker list, our OR tracker list with Trading Buy is now reduced to 25 stocks. Together with 99 stocks in the realised portfolio, the average total return for the tracker stocks (+36.29%) and realised portfolio (+28.02%) since inception in Aug 2012 is 29.68%, which is higher than the total returns of 24.94% from the FBMKLCI for the same period. VITROX (+154.33%) is now the top performer under our OR unrealised tracker list followed by GKENT (+123.76%) and ELSOFT (+111.73%) while REACH (-35.92%) is the top loser after we closed position on KNM and EATECH, followed by PRTASCO (-17.04%) and BJFOOD (-13.14%). Meanwhile, PESTECH (+225.92%), VS (+204.54%) and CAB (+166.74%) remained as the top three realised stocks. On the flip side, EATECH (-68.29%) replaced K1 (-60.39%) as the top loser while KNM (-45.45%) has become the third biggest loser after we closed our position in June.

Source: Kenanga Research - 10 Jul 2017