OSK Strategy and Outlook (Dec 2011)

Essentially, with the uncertainties in Europe continuing amid a potential global slowdown in the economy, we will continue to see market volatility in the next few months. As such, we continue to advise investors to be patient and focus on Defensive counters, while looking out for opportunities to Trade. We continue to advocate Buying into Weakness when the KLCI falls towards the 1,300-pt level, focusing on Banks, O&G and Construction stocks while we advocate Selling into Strength on the same three sectors when the market rallies towards 1,500 pts.

Festive Cheer in December?

While we remain fairly defensive over the mid term, December may still be a bright spot amid the gloom. There is still a possibility of the traditional year-end rally and the just announced joint effort by various central banks, including the US Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of England, the Swiss National Bank and the Bank of Canada to provide liquidity may just convince markets that there will indeed be a coordinated global effort to tackle the sovereign debt woes.

These central banks will be reducing interest rates on dollar liquidity swaps by 50 basis points. While we doubt that this will be the magic pill for Europe and the world, there may just be enough optimism and hope left in December to see markets rise towards the year end. As such, we see a possibility that the KLCI may still rise to end the year in positive territory, close to our 1,533-pt year-end target, although ultimately economic woes in Europe should drag it down towards our 1,466-pt 2012 Fair Value.

Asian governments also getting into the act. The efforts by central banks is also being supported by Asian countries with the Chinese government cutting reserve ratios for its banks, while Thailand announced its first interest rate cut since August 2009. As such, there could also be a regional boost to support the global effort.

OSK Stock Picks for December 2011

Throwing in some cyclical names in December

Given our view that the KLCI may possibly rise in December with the coordinated efforts by central banks worldwide to put on a united front (at least till the end of 2011), we introduce more cyclical names into our Top Buy list, such as Maybank (replacing Axiata that has done very well) and Dialog (replacing the ever defensive KPJ Healthcare).

Source: OSK Research Report

Oil & Gas: Why Malaysia is different? (21 Aug 2011)

With oil prices hovering around USD80-85 per barrel currently, what is the outlook for Malaysia oil & gas (O&G) industry? Dubbed as "Black Gold", crude oil is one of investors favorite asset classes, which is highly volatile. Here, we examined the implications of lower oil prices, current scenario of the industry, and sustainability of oil price going forward. Feel free to share this out via our Facebook page (www.facebook.com/financemalaysia).

What drags down oil prices?

As most of you already know, US and Europe is main culprit for the sliding oil prices. High debt issues still lingering the global economy since 2008 global financial crisis. As such, the potential slowdown in the global economy as per investors perception, droves oil prices lower to current level.

What is the implications?

Actually, the correction of oil prices is driven by sentiment of traders, whom thinking that the demand is going ton be weak soon. What would you do if you're a CEO of Shell? Cutting back on oil exploration spending, re-evaluating the feasibility of planned projects, or even delaying some of them. At worst, you already seen it during 2008 financial crisis, where KNM battling for survival when a few of its clients delaying projects.

Oil prices outlook?

We believe the price of crude oil will trend lower in tandem with easing demand as industrial activities slow down. OSK had revising downwards their oil price forecasts for FY11 and FY12 to USD85-95/barrel and USD80-90/barrel respectively. Immediate resistance at USD90/barrel, while support at USD70/barrel.

Why Malaysia is different?

Unlike other countries, local O&G players are more dependent on our big boss - Petronas. Why? Because, Petronas is the one who is feeding the local players by dishing out marginal oil fields contracts and higher capex committed for next 10 years. No matter how global oil prices trend, Petronas is the growth engine of local players.

Target Price by OSK Research dated 19 Aug 2011

Buy or Sell?

Based on our reasons given above, we should Buy those companies which have strong relationship with Petronas (higher chances of getting contracts) and Sell those companies with excessive foreign contracts. This assumption is correct if oil prices are trending lower. As such, I picks Kencana (strong relationship and earnings) and Dialog (sound business with recurring income).

OSK Stock Picks for July 2011

While fears of an European sovereign debt default reverberating worldwide, Malaysia quietly outperformed most of the world in June as the Banking sector led the KLCI higher after the potential M&A of RHB Cap was called off . We had expected the KLCI to trend higher led by banks but our hope was founded on potential excitement driven by the merger rather than on sighs of relief that there would be no overpaying for RHB Cap.

OSK Research: Top Gainers and Losers of FBM 100 during the month of June 2011.

July looks to be a Strategist’s fantasy?

With numerous announcements related to economic reform and infrastructure developments lined up for July, namely:

• 1 July – The launch of the ETP River of Life project involving the rehabilitation of the Klang River;
• 5 July – The 7th ETP update during which the PM will also unveil PEMANDU’s efforts to classify some 37 policy change recommendations made in the NEM into 6 Strategic Reform Initiative (SRI) clusters that will signal real economic reform and serve as enablers to the ETP projects;
• 8 July – The ground breaking ceremony of the ETP KL MRT project.

Coupled with what appears to be increasing foreign interest in the Malaysian market, July looks to be every optimistic strategist’s dream as the market may well scale higher from its already record levels. Only the risk of unrest related to the planned rallies (now banned) on 9 July appears to be casting a cloud over the July outlook. Even the global outlook has improved with problems in Greece appearing resolved until another day.

OSK Research: Foreign shareholding level still depressed as of March 2011

ETP has been well marketed...

The heightening foreign interest in Malaysia appears to have stemmed in part from the marketing efforts of PEMANDU in promoting the ETP. As economic reform moves into the next gear with the mapping out of details on how the New Economic Model’s policy reform can serve as enablers of the ETP, we believe that the buoyant foreign sentiment can be sustained. Thus we continue to advocate buying of sectors which will benefit from the ETP, namely Banking, O&G, Construction and Property.

Top Buys reflect our 2H2011 outlook

For July, we stay with our favourite sectors in naming our Top Buys, with Banks (Maybank), Construction (Gamuda), Property (UEM Land) and O&G (Dialog) all fielding a representative each. We also present a Top Buy from the Steel sector (Perwaja) in line with our recently upgraded view on the sector on account of potential M&As and handing out of Iron Ore mining concessions.

OSK Research Top Picks for July 2011

Source: OSK Research