The local market is likely to remain choppy, at least for the near term, mainly due to the ongoing geopolitical tension between US and North Korea while the recently concluded disappointing 2QCY17 reporting season is not helping either. Nonetheless, the north-bound crude oil prices and the strengthening of MYR against USD should provide some cushions to downside pressure. Although the FBMKLCI has yet to retrace to our ideal Buy On Weakness level of <1,745 against our revised year-end 2018 index target of 1,835, we have seen tentative signs of a turnaround. Hence, we believe investors should capitalise on any weaknesses to position for the next two seasonally stronger quarters. Technically, immediate resistance levels are 1,783/89 while support levels are capped at 1,770/60. Meanwhile, our OR tracker portfolio is lagging the broader market with total returns of -2.40% in August against FBMKLCI’s +1.17%. Nevertheless, the average returns between realised OR portfolio and unrealised OR tracker since inception of 28.44% still fared better than the barometer index’s total return of 26.34% for the same period.

A slow month, .... As we were busy with 2QCY17 reporting season, we only released four reports where we introduced three new stock ideas and one take-profit piece. Firstly, we closed our position in GBGAQRS (Not Rated) after the recent share price run-up of 20.00% since our note in mid-May as we believe all positives have been priced in. ROHAS (TB; FV: RM1.41) was introduced as a Trading Buy as the proposed acquisition of HG Power Transmission should boost the power and telco tower maker’s order-book instantly by RM400m to RM850m which will keep them busy till 2019. The acquisition also provides a platform for ROHAS into high-growth markets such as Indonesia, Bangladesh, Sri Lanka and the Philippines. Meanwhile, we also featured a new idea, KIPREIT (TB; FV: RM1.05) as this retail REIT offers commanding yields of 6%-7% on the back of its resilient market segment portfolio that target daily staple goods for the low-to-mid income consumers. Besides, its gearing is fairly low at 0.14x. Lastly, we issued a Not Rated note on PERSTIM with a fair value of RM6.05. Despite a relatively stable market demand, profitability of PERSTIMA is under pressure from volatile raw material costs as the group maintains its competitive pricing to customer. Nonetheless, the stock offers an attractive yield of 6%.

... but also a choppy month too. Although it was the first recovery after three straight-month of loses, the local market experienced a seesaw trading in August given the geopolitical jitters mainly from the spat between US and North Korea which was already festering for months. In fact, this time round it was more serious as North Korea launched several missile tests over Japan and this jolted the equity markets around the globe as investors retreated to safe haven assets. Meanwhile, foreign investors also turned net seller for the first time this year with total net outflows of RM242m in August. This reduced total YTD net inflows to RM10.53b. On a positive note, crude oil price as well as MYR against USD were trending upward as crude oil prices are now at new high levels since April this year while MYR is at its 10-month high of 4.20 level against the greenback. At the end of August, the key index rose by 13.13pts or 0.75% to settle at 1,773.16. On our OR Tracker Portfolio, the tracker portfolio posted an average monthly return of -2.40% which underperformed the benchmark index’s total returns of 1.17%, mainly dragged by REACH (-30.95%), BPPLAST (-12.32%) and SASBADI (-11.86%).

Overall tracker performance still not bad. With the closure of one OR stock and the introduction of two new trading ideas, our OR tracker list with Trading Buy is now increased to 29 stocks from 28 stocks previously, Together with 100 stocks in the realised portfolio, the average total return for the tracker stocks (+30.22%) and realised portfolio (+27.93%) since inception in Aug 2012 is 28.44%, which is higher than the total returns of 26.34% from the FBMKLCI for the same period. VITROX (+185.25%) remained the top performer under our OR unrealised tracker list followed by ELSOFT (+128.67%) and GKENT (+126.47%) while REACH (-59.15%) is still the top loser followed by BPPLAST (-26.01%) and BJFOOD (-19.67%). Meanwhile, PESTECH (+225.92%), VS (+204.54%) and CAB (+166.74%) remain as the top three realised stocks. On the flip side, EATECH (-68.29%), K1 (-60.39%) and KNM (-45.45%) are the top three losers.

Source: Kenanga Research - 11 Sept 2017