While we are cautiously optimistic about the local market
even after the just concluded US PE, we see a likely higher volatility in the
local market. In such volatile market conditions, we reckon that the consistent
performers, low‐beta and defensive counters will continue to be the
mainstream investment choices although we did see some profit‐taking
activities among Telco stocks under these categories. A Buy‐On‐Weakness
approach is our preferred investment strategy (preferably below 1,610) as 4Q
& 1Q are seasonally strong quarters for the local market. We also continue
to have faith in our Top 5 picks for the quarter namely MAYBANK (OP, TP:
RM10.40), SKPETRO (OP, TP: RM3.42), TM (OP, RM6.45), UOADEV (OP, TP: RM2.30)
and WCT (OP, TP: RM3.17). Within these top picks, we are most hopeful that
MAYBANK and SKPETRO will outperform, as the upside of FBMKLCI is heavily
reliant on (i) Oil & Gas and (ii) Banking as per our earnings universe. As
for trading ideas, we continue to believe that MEDIA (MP, TP: RM2.34) could act
as a proxy to ASTRO (Not Rated) should the latter be included into
FBMKLCI.
US is historical weaker post its PE, but Malaysia had been
doing the opposite. Historically speaking, even without the concern over
“Fiscal Cliff”, DJIA traditionally performs weaker in the year after a PE. Statistics
showed that DJIA only recorded 3.8%, on average in the following year after a
PE, which is slightly worse than its average performance in PE years of 4.8%.
While we do not rule out an initial negative knee‐jerk
impact to the local equity market, the weak performance of the DJIA after the
US PE may not necessarily translate into a similar scenario in Malaysia in the
longer term. Our findings suggest that FBMKLCI has been recording a stronger
average gain of 7.5% after U.S. PE years as compared to 3.1% in the years
before that.
Highly probable but
downside risk remains. This is not entirely impossible should developed economies’
capital flow into this region, including Malaysia, as an alternative investment
destination for better returns. This has been witnessed from the Net Buying
Position of foreign investors on Bursa Securities’ listed stocks. That said,
should investors’ concern build up over a possible more negative outcome from
the fiscal cliff issue heading into the year‐end, this could also result
in more risk‐adverse trading conditions, which may increase the safe
haven demand for the dollar and potentially see a reversal in the incoming
capital flow.
Revisions in earnings
estimate and Index Target. Post the issuance of our 4Q12 Investment
Strategy Report on 2 October 2012, we have revised some of our sector calls,
earnings and target prices for stocks within our Earnings Universe. Our latest
sector calls are summarised below: OVERWEIGHT:
(i) Banking, (ii) Non‐Bank Financials, (iii) Gaming, (iv) Oil & Gas, and (v)
Power sectors. NEUTRAL: (i)
Automobiles & Parts, (ii) Building Material, (iii) Consumer F&B, (iv)
Consumer Retail, (v) Construction, (vi) Media, (vii) Plantations, (viii)
Property & REITs, (ix) Glove, (x) Technology, (xi) Aviation,
Transportations & Logistics as well as (xii) Water Utilities.
As a result, we have also fine‐tuned
our 12‐month
index target to 1,750 (18.1x & 16.1x to FY12 & FY13 earnings estimates)
from 1,745. As for our end‐2012 index target, it has also
revised up 10 index points to 1,670 (17.3x & 15.4x to FY12 & FY13
earnings estimates) from 1,660. Our FY13 net earnings growth has also been
upgraded marginally from 10.3% to 11.1%. However, we have cut our Y12 net earnings
growth substantially from 36.3% to 5.8%, mainly skewed by Tenaga Nasional
(“TENAGA”, OP, TP: RM7.90).
Source: Kenanga
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