RHBRI 4Q12 Market Strategy: Stay Defensive And Buy On Dips To Outperform The Market

Given the persistent headwinds from the external sector and general election overhang on the home front, we are of the view that the market will likely be stuck in a range-bound trading pattern in the 4Q. Consequently, we believe investors would still need to accumulate fundamentally-robust stocks on weakness in order to outperform the market, while staying defensive on the core holdings will provide greater stability to the portfolio performance.

In addition, as the search for yield will likely remain a key driver for both retail and institutional investors in the 4Q, high divided-yielding stocks will also continue to outperform the market, in our view. A list of our top picks is reflected in table below, which includes “buy on weakness” tactical stocks.

Which Sector to look at?

Sector-wise, our key overweights are telecommunications and banking, although we also have an overweight stance on the consumer, utilities, gaming and rubber gloves under the healthcare sector (see table below). We expect the high-yielding telecommunications stocks to remain relatively defensive for equity investors under the current market environment.

The banking sector, on the other hand, carries a 34.7% weighting in the bellwether index and, in our view, cannot be ignored, given the better-than-expected recovery in earnings momentum over the last two consecutive quarters. The year-to-date annualized loan growth stood at 11.9%, ahead of our and the consensus forecasts of 10-11% and 8-9% and the pipeline of corporate deals remains healthy. This suggests that banking earnings could continue to surpass expectations in the quarters ahead, which coupled with decent valuations and dividend yields vis-a-vis the FBM KLCI benchmark, would bode well for share price performance in the 4Q, in our view.

Source: RHBRI research report

Any Hidden Agenda Behind the Sales of POS and PROTON?

Lately, there was a slew of divestment by Khazanah Nasional Bhd (Investment arm of Malaysia Government). And, the most recent one was the divestment of Proton stakes to DRB-Hicom. But, the strange part was DRB-Hicom was the winning bidder for Khazanah's stake in POS Malaysia last year too.

Questions have been pouring in to Finance Malaysia regarding this issue, such as, are there any linkages between the two national deals? Other than DRB-Hicom, there was none other better suitors? As such, we would like to give our opinion on this matter. (Just for your reading pleasure)

You have the Questions, We have the Answers

First, both POS and Proton were considered as "sunset" companies in their respective industry. Both were not managed well and fallen from their glamorous days. Just as many investors written them off from investment radar, DRB-Hicom comes into the picture. Frankly speaking, the only asset both companies have was Government's backing.

While POS has the monopoly status in its services, Proton being the national car maker was trying to monopolize too by merging with Perodua. It's been a hot debate on whether Proton and Perodua should merge for better synergies. Anyway, we think that they should remain status quo to creates a healthy competition for consumers benefits.

Idea of the year: Combining POS and Proton via Stamp?

Where is the money comes from?

Another question was on the financial soundness of DRB-Hicom to acquires both companies. We as investors knows that DRB-Hicom does not have much cash in hand (even after excessive borrowing). The 32.21% stake at RM3.60 per share in POS costing RM622.79mil. Then, how about the Proton stake which amounted to over RM1bil? It's like a snake swallowing a cow, then a buffalo within few months!!! Can you imagine?

Any Hidden Agenda?

After all this, Finance Malaysia comes out with a guessing questions on the two deals between DRB-Hicom and Khazanah. Anything to do with the upcoming general election? (Seems like everything was linked to GE nowadays) Does the Government scared of losing the next general election and preparing to divest some of its assets first? Then, to whom they should divest to? Of course, their allies, right? DRB-Hicom?

But, what if they won again and POS and Proton was sold? No worry, because their good ally will always be able to sell it back to them (potentially with good investment gains too). Then, Khazanah can re-list again both POS and Proton proudly. Is this the case?

Well, we're guessing only. And, once again, this is for your reading pleasure only. Don't take it seriously. Happy Guessing.

KLCI: What the Hell is going on? + Invest Malaysia 2011

Thinking that yesterday's 13points drop is enough? Today, KLCI slumps again for the 2nd day in a row. Are you expecting it? Personally, I don't think most of us can predict the future. But, what I can say is that many investors like me would positioning our money very well, anticipating some good announcements during Invest Malaysia 2011 Conference today and tomorrow. If you're thinking the same way, Good Luck!!!

TheStar picture

Any BAD news?

Excluding foreign news, NO bad news at all in Malaysia. But, investors see the opposite side now - no good news = bad news!

Profit-taking activities set in on Malaysia market beginning this week. If you're not the one who cash out yesterday, you would probably forced to stay on holding until the "tsunami" is over. Money is washing away from the market, flowing overseas (capital outflow by foreign funds). That's why banking stocks, Genting, Petronas Chemicals took a beating today, pulling down KLCI as a result.

Souce: Yahoo! Finance

While many investors are waiting for the goodies during Invest Malaysia 2011 conference, it seems like the party is over without much excitement. First, let's us summarize the announcements made today:

1. 2nd Capital Market Masterplan (CMP2) to swell the value of the capital market to RM5.8 trillion through greater internalization from RM2 trillion now
• New dual licensing scheme to make it easier for dealers in the equity market to become licensed to trade in the derivatives market
• Increasing the number of day traders by almost 3x to enable more dealer representatives to become specialized traders
• New private retirement scheme is introduced
2. Listing of Felda Group's sugar business expected in July 2011
3. In attracting Malaysian professionals to returned, flat 15% income tax rate for 5 years is introduced

What is lacking?

Surprisingly, the Pos Malaysia's stake which is being divested by Khazanah still remained a mystery. Who would be the winner? PM:"The disposal of Pos Malaysia is now in final stage". Maybe due to this news, DRBHicom (the main contender who tipped to win the stake) falls sharply from recent high of RM2.50 to closed RM2.24 today.

Can we turnaround in 2nd-half?

1st-half (today), the impact had undeniably failed. Let's monitor the 2nd-half (tomorrow). As reported by various analysts, tomorrow's session will highlights the Greater Kuala Lumpur related projects. As such, the Mass Rail Transit (MRT) project should take to the stage, and updated on the progress of project. MRCB and Gamuda should be in focus tomorrow. But, would these counters facing the same DRBHicom's fate too?

Who would be the winner of POS Malaysia?

It's been awhile since the government announcing its intention to divest its shareholding in Pos Malaysia last year. Through Khazanah Holdings, the government owned 32% stake in Pos. Let's re-look at the news with updated info, and hopefully we can have a better prediction on Pos in the near term.

While waiting for a new strategic partner, Pos has declared a one-off final and special dividend of 17.5sen, which provides a dividend yield of 5.7%. However, OSK is maintaining its fair value for Pos at RM4.12 with a BUY call. It closed at RM3.32 yesterday.

On 29th March 2011, Business Times reported unconfirmed sources said that Khazanah had just shortlisted 3 out of 5 parties bidding for its 32% stake in Pos.

Who are they?

The 2 candidates that already failed are:

1. Scomi Bhd
2. Tricubes Bhd

The 3 still-in-run candidates are:

1. Nationwide
2. MPC-Amanah REIT
3. DRB-Hicom

The shortlisted parties will make a final presentation today to Khazanah and McKinsey & Co, who is the adviser. Pos' book value per share stands at RM1.54 and it is known that 3 shortlisted candidates are bidding at between 2.2x and 3x. This implies an offer of RM3.38 - RM4.62 per share. It was reported that the ultimate winner will be announced by the Prime Minister during Invest Malaysia 2011 on 12th April (Tuesday).

What is in the offing from the 3 candidates?

Of the names, each has its own niche expertise, with one looking to inject a bank (likely Syed Mokhtar's Bank Muamalat), one with a logistics expertise (Nationwide) and the other a property developer (MPC and Amanah REIT). It was previously rumored that Syed Mokhtar (DRB) is offering RM1bn for Khazanah's divested stake, which works out to be RM5.78 per share. (OSK Research)

What is so exciting about Pos Malaysia?

• Relaxation of Postal Act, which could allow Pos Malaysia to re-develop some of its land parcels to unlock the value of its land-bank.
• Expanding revenue from offering shared banking services with RHB and Maybank.
• Plans to introduce a new direct address mail service soon. Advertisers can channel some of their advertisement spending to direct address mail to target customers.

Recent DRBHCOM share price movement

Finance Malaysia's prediction...

While not able to access the inside information, Finance Malaysia looks at a different angle to predict the ultimate winner, this time via technical analysis. Judging from the past weeks price movements, DRB Hicom is signaling something boiling behind. Today, DRB closed at RM2.16. Would it be the one?