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

Outlook: SELL in May and Go Away? (May 2012)

Lackluster global markets. The Malaysian market sputtered in April after hitting a  record close of 1606.63pts early in the month. It then trended downwards together with most global markets, as political uncertainties in Europe sapped the strength of markets worldwide in the first half of the month, while political uncertainties at home dampened the KLCI in the second half of the month. This was indeed as per our expectations.

Outlook: Sell in May and Go Away?

We investigated the historical index performance over the months of May–Sept and Oct–April for the US and for Malaysia, Jakarta and Hong Kong to try and determine if there was any truth to the old adage. Analysis indicates that over the past 52 years in the US and 22 years in Asia, markets do indeed under-perform more during the months of May–Sept as compared to Oct–April, with the KLCI surprisingly emerging as a high beta market compared to the other three markets.

What goes up must come down
With the  historical trend speaking for itself and global markets performing robustly thus far in 2012, we therefore believe there is a strong risk for markets to retrace in May. Even though Malaysia has under-performed global markets year to date, a global slump may still put a dent in the Malaysian market. As such, we advise the following strategy for the month of May:

• Sell early in the month with Blue Chips likely being sold down if the global market slumps
• Buy defensive stocks early in the month, especially in the Mid and Small Cap consumer  space as some stocks here have not rallied in the 1Q
• If markets come down significantly, ie, the KLCI drops below the 1550pts, then consider accumulating stocks in the Construction, O&G and Banking space on weakness

April Top Buys did well
Considering the 1.6% drop in the KLCI for April, our top Buys did well with 4 out of our Top 5 outperforming the KLCI and also returning a positive return for the month. This was due to our strategy of selectively picking stocks with their own specific catalysts in April. The only disappointment was  MMC that continued to be dampened by rumours of a delay in the IPO for Gas Malaysia.

Start off with defensives in May
With a potential drop in the market in May, we would recommend going defensive over a 1-month time frame. Those with a longer time frame could consider picking up cyclical as the market drops, but we do not have the luxury of that for our monthly outlook. The Top 5 are, therefore, familiar defensive names including telecom companies Axiata and Telekom Malaysia, consumer-related plays AirAsia (which may benefit from lower oil prices) and Media Chinese (benefiting from increased political interest) as well as TASCO, a small logistics company with reasonable dividend yields and a strong track record.




Source: OSK Research report

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

OSK Strategy and Outlook (Oct 2011)

We still feel that there is downside to the KLCI although with non-GLICs supposedly close to maximum cash levels and GLICs supposedly not aggressively supporting the market up till now, further downside maybe somewhat less than our recession market bottom of 1086 points.

OSK: Normalised performance of September’s top stock picks

With Budget 2012 (to be announced on this Friday 7th Oct) around the corner, OSK has no major expectations of the budget except that it will probably be people friendly and include:

1. No further tightening of regulations with regards to the property sector which should be positive for property stocks
2. No hike in Brewery Tax which will be positive for Carlsbergy and Guiness
3. A 4.5 - 6.8% hike in Tobacco excise duties which will be mildly negative for BAT and JTI
4. A likely hike in Civil Servants salary as the last hike was in 2008 which will be positive for MBSB

OSK: Defensive Top 10 Buys

OSK remain defensive for now with expectations of a further drop in the KLCI although they do not see it dropping to our recession bottom of 1086 points. Given the volatile market conditions, it is difficult for us to forecast when the KLCI may fall past the 1300 points level although a break below is possible in October itself. As such, our recommendation is no longer "time-based" but rather "level-based".

For now, with 1300 points still some 6% away from current levels, we remain NEUTRAL on the market with our call still focused on Defensive stocks. A fall below the 1300 level will likely prompt us to upgrade our call on the market to a BUY.

OSK: Top 5 picks for the month of October 2011

With 3 of Top 5 Buys in September outperforming the KLCI and given the significant market uncertainty remaining, OSK keep its Top 5 Buys intact for October. Axiata, Petronas Gas, TM and KPJ are undoubtedly defensive stocks while selling may yet abate on foreign darling AirAsia with profit prospects improving as oil price drops. Aggressive Bottom Fishing is only recommended once the market breaks below 1300 points with names such as Genting, Parkson and Dialog coming to mind then.

Source: OSK Research

CLSA Top 5 Picks during volatile times (16 Aug 2011)

After an unexpected AAA rating downgrades and an expected correction, KLCI is coming down from its peak of 1,597 points in early July. CLSA come out with a timely report highlighting 5 stocks which investors should focus on even during volatile times. These stocks have resilient earnings, clear earnings visibility and are supported with dividend yields.

CLSA: YTD major indices performances as at 08 Aug 2011.

Which are the counters?

Axiata - Turning into a cash cow

• Axiata's earnings will remain resilient during downturn as EBITDA is dominated by cellcos in Malaysia and Indonesia where price competition is muted these days.


• From a highly geared company in 2008, Axiata is now turning into a cash cow with forecast yield rising to 10% in FY13. CLSA is expecting dividend yield of 3.6% for FY11, translating into total shareholders return of 10%.

Gamuda - Risk discounted

• The 22% share price fall from 52-week high has discounted its Vietnam investment risk. US$600m market cap loss is more than its US$350-400m investment to date.


• FY12 earnings are underpinned by high-margin construction orderbook worth RM2.7bn, unbilled property sales of RM1bn and recurrent infrastructure earnings.


• MRT project news flow catalyst. Potential 26% upside to RM4.20 target.

Genting Malaysia - Growth, value and net cash

• Its investment thesis remains geared towards growth as the UK casinos rebounds off a low base and the New York facility begins maiden contributions.


• Gaming revenue, particularly in Malaysia, is uncorrelated with economic health. Balance sheet remains robust and it is among the most attractively valued gaming stocks globally.

Maybank - Resilient dividend yield

• Regional expansion strategy through Kim Eng acquisition is earnings accredited.


• Rising productivity and cross-selling activities will improve ROE and regaining domestic market share in profitable loan segments and investment bank deals.


• High net yield of over 6% in FY12, supported by dividend reinvestment plan.

TM - Potential for special dividend

• TM is recording strong growth for HSBB and this product could turn EBITDA positive earlier than expected.


• Management undertakes active capital management and we are expecting special dividend of 3.3% from recent sale of Axiata shares.

Source: CLSA article dated 09 Aug 2011

English Premier League from Maxis?

Recently, TM and Maxis concluded a 10-year agreement for TM to provide High Speed Broadband (HSBB) Access Services to Maxis. According to RHB research, Maxis with the agreement, can instantly roll out fixed home services to a potential pool of higher ARPU customers with last mile access via TM’s HSBB network to 700k premises, and up to 1.3m premises by end-2012.

Currently, Maxis’ fixed home services is limited to Bandar Utama, Sierramas, Bangsar and Sri Hartamas via its own fibre-to-the-home (FTTH) network. And, as Finance Malaysia know, Maxis is targeting to launch its service in the newly popular township of Puchong.

Maxis's secret weapon - Content
All in one, Maxis plans to roll out are IPTV, VoIP, video-on-demand (VoD) and high speed Internet. In fact, TM itself already offers some form of IPTV and VoD bundled in together with its core service of high speed Internet in its UniFi packages. Hence, content is indeed a very important element for Maxis to stand out. It is very likely that Maxis will leverage off its sister company, Astro especially for the Astro's exclusive rights of English Premier League.

A Win-Win situation 

For Maxis, it can save on its capex by riding on TM's HSBB network, without the need to build its own fibre network which could cost billions of ringgit. For TM, it could benefits from more wholesale revenue arising from a higher utilisation rate of its HSBB network.

Sick of TM's monopoly status...

In frustration and disappointment, I wrote this post about the connectivity problem of our beloved Malaysia. I am writing this at a cafe, where I have to bare all the petrol and beverages costs in order to arrived. Without further ado, I opened my laptop while waiting for my hot white coffee, to express what's the feeling inside me.

Deep down in me, I want to channel a very clear message to TM and Government that Rakyat like us are very very very frustrated with the Internet service provided by TM. I am bringing up the feeling of Malaysians as a whole that Streamyx is nowhere to transform our nation to high-income nation.

Please do not blame me first. Let me explain my point of view as below:

Dear TM:

- The Internet connection at my area (at least) was always down, even though I had highlighted to them a few times. Please note that I am just "highlighting" to TM. But, these seems not working without "complaining".

Dear Government:

- First we have to ask ourselves why such things happened?

- In fact, this is happening for so many years, although TM did make some improvements.

- It's very clear that the monopoly status conquer by TM on fixed dial-up Internet services (Streamyx) is suck.

- Why not open up the business? Just like the competitive broadband business?

Please do something fast, this is a very urgent issue hampering the efforts being made to attract foreigners to work here, transforming Greater KL, transforming Malaysia as a high-income nation...