Wednesday, May 30, 2012

KLCCP- may have a bullish breakout

KLCCP broke above its horizontal resistance at RM3.60 yesterday. Today, the stock continued to rise. It hit a high of RM3.78 before closing at RM3.75. The stock may retest its 2007 high of RM4.10.

Chart 1: KLCCP's weekly chart as at May 28, 2012 9Source: Tradesignum)

What could propel this stock to rise at this hour? Its recent results shows a drop in net profit & pre-tax profit of 80-84% q-o-q or 39-44% y-o-y. However, if we exclude the Fair Value Adjustment, it seems the company's performance has actually improved with operating profit gaining 15% q-o-q or 23% y-o-y to RM204 million while Other Expenses (mainly, Finance Costs) dropping 54% q-o-q or 61% y-o-y to RM9 million.

Table: KLCCP's results for QE31/3/2012 compared q-o-q & y-o-y

The other possible reason is REITs are regarded as 'safe-haven assets'. This point was made by Marc Mozzi of Socgen recently, which was picked up by Clusterstock (here). He wrote:

Markets Preserving capital has become the universal rule as we just don’t know what might now happen or drive the mood swings of Mr. Market‛, as our Global Strategist Dylan Grice coined it. Fundamentals no longer appear relevant and investors are turning to real physical assets like commodities and real estate in London and it seems anything that is not euro-related. London real estate and (in or view unjustifiably) the UK has largely continued to hold onto its ‘safe haven’ status. London’s REITs today trade at a nil discount to net asset value and have almost been accorded ‘gold status’ with 2.0% dividend yield (uncovered for some) where you can get a 6.4% yield from real estate names on the continent (and a 17% discount). 

The UK real estate market has been sick for awhile, but London real estate is a natural place for wealthy people all over the Eurozone to to park their cash. German real estate also holds similar appeal.

For an example of this phenomenon in action, check out this 6 month chart of London REIT Greater Portland Estates (orange line) vs. the UK stock index the FTSE 100 (green line). The outperformance, especially of late as the stress in Europe has intensified, is clear.

Chart 2: London REIT Greater Portland Estates (orange line) vs. the UK stock index the FTSE 100 (green line) [Source: Bloomberg]

In fact, if you look a the REITs listed on Bursa Malaysia, you will see that many are trading at their high.

Based on the above, I believe KLCCP could be a trading BUY if it pull back closer to the breakout level at RM3.60.

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