Market Outlook as at May 31, 2012

FBMKLCI is surprisingly pressing against the short-term downtrend line at 1580. A break above this downtrend line would be positive. If nothing else, it would signal a pause in the selling and an opportunity for stocks to form a base.


Chart 1: FBMKLCI's daily chart as at May 31, 2012_4.20pm (Source: Quickcharts)

I have looked through the indices of all the sectors in our market. Finance, Trading Services & Industrial Products are presently pressing against their medium-term downtrend line, while Construction & Plantation indices have yet to test their downtrend line. The chart for Consumer Product is tricky, as the index is presently in a V-spike recovery after a V-spike drop. The only sectoral index which has broken above its downtrend line is Properties (see below).


Chart 2: Properties's daily chart as at May 31, 2012_4.20pm (Source: Quickcharts)

Panamy- profit dropped & dividend disappeared?

Results Update

Panamy had just announced its results for QE31/3/2012. Its net profit dropped 62% q-o-q or 49% y-o-y to RM7.5 million while its revenue dropped 29% q-o-q but rose 5% y-o-y to RM158 million. Profit dropped y-o-y due to competition in the fan segment in the Middle East region, which resulted in a drop in pre-tax profit for that segment (from RM46.9 mil for FYE31/3/2011 to RM30.6 mil to FYE31/3/2012). Turnover dropped q-o-q due to the festive season, which led to lower net profit.


Table: Panamy's last 8 quarterly results


Chart 1: Panamy's last 21 quarterly results

Dividend delayed?

Panamy, which had in the past announced its hefty special dividend in calender quarter ending March, failed to do so in the latest quarter. Is the company considering a reduction in the dividend payout?



Chart 2: Panamy's dividend record for last 21 quarterly results

Valuation

Panamy (currently at RM21.54) is now trading at a PE of 19.8 times (based on last 4 quarters' EPS of 109 sen). At this PE multiple, Panamy is deemed fully valued.

Technical Outlook

Panamy is in a long-term uptrend, with strong resistance at the horizontal line at RM23.40.. Its immediate support is at the horizontal line at RM21.20 and thereafter the uptrend line (SS) support at RM19.80-20.00.


Chart 3: Panamy's daily chart as at May 30, 2012 (Source: Quickcharts)

Conclusion

Based on limited upside from valuation angle, I would maintain my earlier rating for this stock, which is to sell into strength.For those who fancy a trading BUY, you can do so if the stock were to test its uptrend line at about RM20.00.

UMW- may have a bullish breakout

Results Update

UMW announced its results  for QE31/3/2012 yesterday. Its net profit increased by 45% y-o-y to RM220 million on the back of a 15%-increase in revenue to RM3.695 billion.

The improved profitability on q-o-q basis was due to the positive turnaround for two segments- Equipment and Oil & Gas which reported a pre-tax profit of RM54 million & RM30 million respectively as compared to net loss of RM45 million & RM190 million respectively. This was more than offset the decline in pre-tax profit for the Automotive segment which declined from RM480 million to RM371 million.

Net profit increased by more than 3-fold q-o-q due to higher effective tax rates for last calender quarter for the following reasons:

• assets impairment losses not tax-deductible, 
• non-recognition of deferred tax assets for subsidiaries and 
• higher tax rates for overseas subsidiaries.

Table: UMW's last 8 quarterly results


Chart 1: UMW's last 21 quarterly results

Valuation

UMW (currently at RM8.03) is now trading at a PE of 16 times (based on last 4 quarters' EPS of 49 sen). At this multiple, UMW is deemed fully valued.

Technical Outlook

UMW has just broken above its triangle, ABC at RM7.80 yesterday. If we assume the distance of this rally to be equivalent to the distance from point 'B' to the breakout level (of RM3.00), then the target for the rally is RM11.00. That's quite a distance and it can only happen if UMW's financial performance were improved substantially.


Chart 2: UMW's monthly chart as at May 29, 2012 (Source: Tradesignum)

Conclusion

Based on technical breakout, UME could be a trading BUY. As the stock is fully valued, this could be a risky trade. Plese exercise careful discretion if you chose to trade this breakout.

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.

DRBHCOM- profit soared due to exceptional item

DRBHCOM announced its results for QE31/3/2012. Its net profit soared from RM72 million in QE31/3/2011 to RM1.018 billion in QE31/3/2012 due to recognition of negative goodwill of RM972 million (arising from its acquisition of Proton). Its turnover inched up to RM2.3124 billion from RM1.998 billion previously. For more, go here.

Chartwise, DRBHCOM is in a long-term uptrend line, with support at RM2.30 (see Chart 1). If it can break above its medium-term downtrend line, RR at RM2.50, the stock may continue its uptrend (see Chart 2).


Chart 1: DRBHCOM's weekly chart as at May 29, 2012 (Source: Tradesignum)


Chart 2: DRBHCOM's daily chart as at May 29, 2012 (Source: Tradesignum)

Canone- profit soared due to exceptional item

Results Update

In QE31/3/2012, Canone's net profit soared 6-fold q-o-q or 22-fold y-o-y to RM91 million while revenue increased by 9% q-o-q or 39% y-o-y to RM182 million. The improved profit was attributed to Share of Profit from Associates of RM88 million. This new exceptional item can only come from the newly-acquired associate, Kian Joo. I think the description of the item may not be accurate. The proper description should be excess of Share of Net Assets of Associates of RM329 million over the price paid for the Acquisition of RM241 million.

Note: Kianjoo reported a pre-tax & net profit of RM33.5 million & RM27.2 million, respectively. For more, go here.


Table: Canone's last 8 quarterly results


Chart 1: Canone's last 14 quarterly results

Valuation

Canone (closed at RM2.15 yesterday) is now trading at a PE of 10 times (based on last 4 quarters' adjusted EPS of 21 sen [with the exceptional gain of RM88 million excluded]). At this PE multiple, I believe Canone is still attractive, with potential upside of 10-20%.


Technical Outlook

Canone's share price is trapped within a triangle. If it can break to the upside of that triangle, ABC at RM2.25, the share price could continue its prior uptrend.

 
 Chart 2: Canone's daily chart as at May 29, 2012 (Source: Tradesignum)

Conclusion

Based on good financial performance, promising prospects flowing from its successful acquisition of Kianjoo & attractive valuation, Canone is a good stock for long-term investment.

Mudajya- an attractive construction stock

Results Update

Mudajya reported its results for QE31/12/2012 yesterday. Its net profit rose 12% q-o-q or 80% y-o-y to RM74 million while its revenue increased by 2% q-o-q or 97% y-o-y to RM440 million. The bulk of the revenue & profit came from the Construction segment, which saw the delivery of major components of the Equipment Procurement contract for the 4x360MW coal-fired power plant at Chhattisgarh, India.


Table: Mudajya's last 8 quarterly results


Chart 1: Mudajya's last 14 quarterly results

Valuation

Mudajya (currently at RM2.73) is now trading at a PE of  5.2 times (Based on last 4 quarters' EPS of 52.5 sen). At this multiple, Mudajya is deemed quite attractive.

Technical Outlook

Mudajya is still in a long-term uptrend line, with support at RM2.30.


 Chart 2: Mudajya's monthly chart as at May 28, 2012 (Source: Tradesignum)

Conclusion

Based on good financial performance, attractive valuation & positive technical outlook, Mudajya is a good stock for long-term investment.

Wellcal chalked up another good quarter

Results Update

Wellcal has just its results for QE31/3/2012. Its net profit dropped 3.5% q-o-q but rose 90% y-o-y to RM5.5 million while its revenue declined 9.7% q-o-q but rose 15.5% y-o-y to RM37 million. The drop in net profit q-o-q basis was partly due to a one-off bonus payment of RM635k during the quarter. If that is excluded, net profit remained unchanged despite the 9.7% q-o-q decline in revenue. The reason for this is the company enjoyed better sales mix, with higher sale of mandrel rubber hose, which has higher profit margin than extruded rubber hose.


Table: Wellcal's last 8 quarterly results


Chart 1: Wellcal's last 14 quarterly results

Valuation

Wellcal (currently at RM1.83) is trading at a PE of 11.4 times (based on last 4 quarters' EPS of 16 sen). The stock is trading near its fair value. Wellcal's management pays out nearly 100% of its earning as dividend. Thus the stock has an attractive dividend yield of 8.2%.


Technical outlook

Wellcal is still in an uptrend. The 10-week SMA line, which provides a good support for this stock, is currently at RM1.67.


Chart 2: Wellcal's weekly chart as at May 28, 2012 (Source: Tradesignum)

Conclusion

Based on good financial performance and still-positive technical outlook, Wellcal remained a good stock for long-term investment. Its upside potential may be limited as it is trading at a PE of 11.4 times. However, it is a good dividend stock as it has a dividend yield of 8.2%.

RHBCap & OSK- trading at attractive prices

RHB Cap yesterday signed the conditional share purchase agreement with OSK Holdings to acquire:

• 100% of OSK Investment Bank Bhd (OSK IB) for 245 million new RHB Cap shares worth RM7.36 each, and RM147.5million in cash;
• 100% stake in OSK Investment Bank (Labuan) Ltd, 20% in OSK Trustees Bhd and 20% in Malaysian Trustees Bhd held by OSK Holdings for RM26.8million in cash; and
• 59.95% in Finexasia.com Sdn Bhd for RM12.5million (in cash).

The deal valued OSK IB at 1.77 times price-to-book and 18.9 times historical price-to-earnings (as per the report in the Star) and RHBCap at 1.34 times price-to-book and 9.1 times historical price-to-earnings (based on the financial statement for QE31/3/2012 where the 1Q2012 EPS was 19.8 sen & Net Assets ps was RM5.46).

I think the deal is a fair deal. The deal is slightly more favorable to OSK as it will be swapping its IB valued at 1.77 times its book value for RHBCap shares valued at only 1.34 times its book value. The market is expecting OSK to ask for a price closer to 2.0 times its book value. The disappointment led to a selldown in OSK shares this morning, which dropped 14 sen to close at RM1.60. If OSK’s management were to insist on an asking price for OSK IB of 2.0 times its book value, then RHBCap’s management would surely demand a higher value for the RHBCap shares to be issued in the share exchnage. To me, you can’t have the cake and eat it at the same time.

As for RHBCap, the deal will result in earning dilution. Earning dilution happens when you have a share swap where you are issuing your shares at a lower PE than the shares that you are buying. This earning dilution will take 18 months to work out and it may explain the current weakness in the share price of RHBCap. Nevertheless, RHBCap is an attractive banking stock, trading at a lower PE & PB than the other banking stocks listed on Bursa Malaysia.


Table: RHBCap's valuation vis-a-vis other banking group

RHBCap is trading very near its medium-term uptrend line support of RM7.20. The next support is the psychological RM7.00 level.


Chart 1: RHBCap's daily chart as at May 29, 2012_11.30am (Source: Quickcharts)

OSK has been trading within a 'range' between RM1.60 & RM1.80. We can expect good support at RM1.60 & its next support would be the horizontal line at RM1.50.


Chart 2: OSK's daily chart as at May 29, 2012_11.30am (Source: Quickcharts)

Based on the above, I believe that OSK and RHBCap are fairly attractive at the current prices. Both are good stocks for long-term investment.

Perstim- top-line & bottom-line dropped

Results Update

In QE31/3/2012, Perstim's net profit dropped 42% q-o-q or 28% y-o-y to RM4.6 million while its revenue dropped 12% q-o-q or 14% y-o-y to RM179 million. The lower profit was due to lower sales volume coupled with lower profit margin. The lower profit margin was due to the reduction in selling price to remain competitive especially for Malaysia market.


Table: Perstim's last 8 quarterly results


Chart 1: Perstim's last 31 quarterly results

Valuation

Perstim (closed at RM3.40 at the end of the morning session) is now trading at a PE of 9.6 times (based on last 4 quarters' EPS of 35.44 sen). As the financial performance continued to weaken, Perstim's PE multiple continue to be compressed. How much it would be compressed, I am not sure.

Technical Outlook

Perstim's share price movement over the past 12 years is well captured by the two curvilinear lines (in blue). The current downtrend could send the share price to the lower line, where the support will be about RM2.00. At this moment, I think this extreme price is not likely to pan out.


Chart 2: Perstim's monthly chart as at May 24, 2012 (Source: Tradesignum)

Conclusion

Based on deteriorating financial performance and poor technical outlook, Perstim is a stock to be avoided.

Coastal's profit margin dropped sharply

Results Update

Coastal has just announced its results for QE31/3/2012. Despite higher revenue (which increased by 6% q-o-q or 49% y-o-y to RM233 million), Coastal's net profit dropped 40% q-o-q or 45% y-o-y to RM30.8 million. The company attributed the drop in its bottom-line to a decline in profit margin. What else?!


Table: Coastal's last 8 quarterly results


Chart 1: Coastal's last 31 quarterly results

Valuation

Coastal (closed at RM1.88 yesterday) is now trading at a PE of 5.5 times (based on last 4 quarters' EPS of 34.29 sen). At this multiple, Coastal is deemed fairly attractive.

Technical Outlook

I have drawn three parallel lines on the chart below. These lines seem to act as support & resistance against which Coastal's share prices would bound off. Presently, Coastal is breaking the middle line at RM1.90. This could be followed by a downward move towards the lower line (where support is at RM1.20-1.30).


Chart 2: Coastal's weekly chart as at May 24, 2012 (Source: Tradesignum)

Conclusion

Coastal is a stock worth close tracking as it is quite attractively priced. However, its financial performance is a bit weak in the past few quarters. My unconventional technical approach has just issued a red flag, anticipating a downward move in the stock. On balance, I would suggest that we avoid this stock for now, given the poor market condition.

Allianz's bottom-line improved

Results Update

Allianz has announced its results for QE31/3/2012. Its net profit increased by 55% q-o-q or 20% y-o-y to RM53 million while its revenue was unchanged q-o-q but increased by 13% y-o-y to RM739 million. The improved bottom-line was attributed to better results from the general insurance operations.


Table: Allianz's last 8 quarterly results


Chart 1: Allianz's last 25 quarterly results

Valuation

In the last 4 quarters, Allianz reported gross EPS of 98 sen or diluted EPS of 44 sen. Based on its closing price of RM4.71 at the close of the morning session today, Allianz is now trading at a net PE of 10.7 times. For a company with such a strong growth track record, Allianz is deemed fairly attractive.

Technical Outlook

Allianz's uptrend seems to have stalled. It has been consolidating within an ascending triangle. An upside breakout above RM5.00 would be bullish. On the other hand, if the share price were to break below the RM4.50 mark, the outlook would be bearish.


Chart 2: Allianz's weekly chart as at May 24, 2012 (Source: Tradesignum)

Conclusion

Based on good financial performance & fairly attractive valuation, I would rate Allianz as a good stock for long-terrm investment. However, you should be mindful of the technical uncertainty in the stock & avoid taking too large a position in this stock.

MBL- a safer proxy to the oil palm sector

Background

Muar Ban Lee Bhd (‘MBL’) is a manufacturer of oil seed crushing machinery, providing "One Stop Service" in setting up Palm Kernel Crushing Plants from Plant Design and Fabrication to Installation and Commissioning. It had successfully completed hundreds of oil seed crushing plants for major plantations and oil mills throughout the world. I guess MBL is to the palm kernel crushing plant what CBIP is to palm oil mill. Both are obviously benefiting from the breakneck development of oil palm estates.

Recent Financial results

In QE31/3/2012, MBL's net profit increased by 92% q-o-q or 239% y-o-y to RM6.5 million while revenue increased by 95% q-o-q or 120% y-o-y to RM24.4 million. The company attributed its better performance to higher recognition of results from its project sales. The company guided that it will achieve better results for FY2012 in view of its strong order book.


Table: MBL's last 8 quarterly results


Chart 1: MBL's last 11 quarterly results

Valuation

MBL (closed at RM0.975 yesterday) is now trading at a trailing PE of 5.3 times (based on last 4 quarters' EPS of 18.25 sen). At this multiple, MBL is deemed fairly attractive.

Technical Outlook

MBL broke above its expanding triangle at RM0.80 in March. With this breakout, MBL has just started on its upleg.

Chart 2: MBL's daily chart as at May 24, 2012 9Source: Tradesignum)

Conclusion

Based on good financial performance, attarctive valuation & bullish technical outlook, MBL could be a good stock for long-term investment.

Market Outlook as at May 23, 2012

Finally, let's round up with a quick look at our very own FBMKLCI. The chart looks bearish. The line on the sand is 1530. If that is violated, we could see a repeat of the selldown in August & September 2011. The next two support levels- the psychological level at 1500 & the horizontal line at 1480- will have a tough time once the floodgates are opened.

 
Chart: FBMKLCI's daily chart as at May 23, 2012 (Source: Quickcharts)

BRIC needs a breakthrough but how?

Many would be disappointed if they placed too much hope on China- and the other nations that constitute BRIC- to make up for the shortfall in global economic growth due to economic slowdown in Europe & slow growth in US. All signs seem to point to slower growth in these economies. This is reflected in the performance of their main stock market barometers.

After declining for more than 1 years, all the major indices (SSEC, BSE & BVSP) broke above their respective intermediate downtrend line in February or March. RTSI is the only exception. In May, BSE & BVSP have both dropped back below the downtrend line. The last man standing is SSEC, which is rather surprising given the strong case being made by some economists & pundits that China is likely to experience economic hard landing. Recent reports that China is suspending shipments of coal & iron ore only served to strengthen the case for a Chinese economic hard landing. That, and a slowdown in US & Japan plus a recession in Europe, would make for a perfect storm. Let's hope not.


Chart 1: SSEC's daily cahrt as at May 22, 2012 (Source: Stockcharts)


Chart 2: BSE's daily cahrt as at May 22, 2012 (Source: Stockcharts)


Chart 3: BVSP's daily cahrt as at May 22, 2012 (Source: Stockcharts)

Chart 4: RTSI's daily cahrt as at May 22, 2012 (Source: Stockcharts)

Equity Markets in Developed Nations looking precarious

A quick look at the developed equity markets revealed that the majority of these markets are below the 200-day SMA line and/or below their intermediate uptrend line. 



The US markets (as represented by DJIA & Nasdaq) are below the accelerated uptrend line (SS) but are still above their 200-day SMA line. These markets are among the strongest equity markets as they were able to surpass the high recorded in May-August 2011. I have drawn alternative uptrend line (S1-S1) and both indices are very near the alternative uptrend lines. Can they stay above this alternative uptrend line? We will wait & see.


Chart 1: DJIA's daily chart as at May 22, 2012 (Source: Stockcharts)


 Chart 2: Nasdaq's daily chart as at May 22, 2012 (Source: Stockcharts)

The European markets have weathered the fallout from the Eurozone sovereign debt quite well. Then again, the true test- GREXIT- is still around the corner. DAX is still above its 200-day SMA line as well as rebounded above its intermediate uptrend line after a brief violation last week. CAC & FTSE are both below their 200-day SMA line & intermediate uptrend line (SS). I have drawn alternative uptrend line for CAC & FTSE (S-S1 or S1-S1) and both indices are above the alternative uptrend line.

 
Chart 3: DAX's daily chart as at May 22, 2012 (Source: Stockcharts)


Chart 4: CAC's daily chart as at May 22, 2012 (Source: Stockcharts)


Chart 5; FTSE's daily chart as at May 22, 2012 (Source: Stockcharts)

HSI and STI are below their 200-day SMA line. HSI is also below its intermediate uptrend line while STI tested its intermediate uptrend line & recovered.


Chart 6; HSI's daily chart as at May 22, 2012 (Source: Stockcharts)


Chart 7: STI's daily chart as at May 22, 2012 (Source: Stockcharts)

Based on the above, we can see that the developed equity markets are at critical level. Any further weakness could bring forward further selldown & possibly a Test of the (September) Low. We can only hope that the uptrend line would not be violated (which doesn't look very promising) or the Test of the Low would yield a positive outcome.