We are entering another busy month of earnings reporting season again and so far the report cards are fairly inline. With shocks from geopolitical tensions seemingly abating as regional markets continue their trend upwards especially Wall Street, which kept hitting fresh highs, the local market is likely to follow suit. This is to be supported the strong crude oil prices as well as stabilisation in MYR against the greenback. However, technically the FBMKLCI appears caught in downward pressure as momentum remains negative with downside supports at 1,729/1,713 while overhead resistances are likely at 1,765/1.783. Nonetheless, lower-liners have been more buoyant, with FBMSC trading close to its 3-month high indicating that retail sentiment is picking up. Meanwhile, our OR tracker portfolio is leading the broader market with total returns of +3.07% in October against FBMKLCI’s -0.15%. The average returns between realised OR portfolio and unrealised OR tracker since inception of 29.04% still fared better than the barometer index’s total return of 25.38% for the same period.

A quiet month. We released only one OR report last month in which we recommended investors to take profit on VS (Not Rated) with 101.48% gains since our initial Trading Buy recommendation in August 2016. We believe that most of the known positives have already been priced in following the strong share price performance which had doubled in the past one year. VS has continued to see more stack-up orders from its key customers across all segments, thanks to its VI capabilities and proven track record of servicing global customers. On the other hand, with the commencement of new box-build assembly lines alongside resilient orders in China and Indonesia markets, we expect a 2-year CAGR of 30% and valued the stock at RM3.10. It is now a Not Rated stock. We will review our call if there are new earnings catalysts in the future. On the other hand, as we are now busy with 3QCY17 results season this month and also looking forward to the 2018 Strategy report next month, there will be less OR ideas in these two months.

A slow month despite robust regional markets. The local market started the month of October with a positive note and this continued for the first two weeks of the month which mirrored stronger performances from the regional bourses, especially the US markets where key indexes continued to hit fresh record highs on better economy data. However, towards the 2H of October, sentiment turned cautious ahead of the Budget 2018 although regional peers continued to head north. In fact, foreign investors remained as net sellers for the 3rd consecutive month with cumulative net outflows which declined by 69% MoM to RM226m and reduced YTD total net inflow to RM9.39b. On a positive note, MYR stabilised at 4.20-4.25-levels against the greenback while crude oil prices trended above USD60/bbl at the end of the month from USD55/bbl. At the end of October, the FBMKLCI dipped slightly by 7.66pts or 0.44% to settle at 1,747.92. On our OR Tracker Portfolio, the tracker portfolio posted an average monthly return of 3.07%, which outpaced the benchmark index’s total returns of -0.151%, mainly led by SOP (+14.50%), VITROX (+13.29%) and XINHWA (+13.21%).

Overall tracker performance still commendable. With the closure of VS position as mentioned above, our OR tracker list with Trading Buy is now reduced to 29 stocks. Together with 102 stocks in the realised portfolio, the average total return for the tracker stocks (+32.15%) and realised portfolio (28.15%) since inception in Aug 2012 is 29.04%, which is higher than the total returns of 25.38% from the FBMKLCI for the same period. VITROX (+217.43%) remains as the top performer under our OR unrealised tracker list followed by GKENT (+165.99%) and ELSOFT (+121.72%) while REACH (-42.96%), BPPLAS (-29.07%) and BFOOD (-18.04%) are still the top three losers. Meanwhile, VS replaced PESTECH (+225.92%) as the top gainer under the realised portfolio for our two trading buy recommendations since Jan 2014 with total gains of 306.02% while CAB (+166.74%) retained its top three position. On the flip side, EATECH (+68.29%) and K1 (+60.39%) and KNM (45.45%) remain as the top three losers under the realised portfolio.

Source: Kenanga Research - 10 Nov 2017