Talking Edge 1106 - Apr 16, 2016

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Publish date: Tue, 19 Apr 2016, 10:47 AM

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1. Berjaya Auto’s FY16 earnings are expected to fall but almost all analysts are calling it a buy. I don’t understand. So far price has not been moving which is probably the best performer in automobile sector that is mired in a down cycle. There is indeed room for higher dividends as DPR stood at 73%, assuming same level of earnings this year. But if you go for yields, why not MREITs?

2. Malaysia Airports was up 19% YTD, why? Analysts are rather divided on its prospects and its ratings. If MAHB opens up its secondary airports in the country to foreign carriers, MAS and AirAsia’s dominant position in the domestic market could be challenged.

3. Superlon said it will benefit from the global warming. Then why don’t buy established industry leaders like Spritzer and Tenaga for this reason? Things are definitely going well, judging by its past 3 years’ accounts and the management’s optimism.

4. 1Q market roundup: MREITs and large-caps rejoiced as Yellen takes a slow and steady approach to the rate hike cycle. But historically, Fed usually don’t give a shit about the rest of the world and can hike the rate fast and furious last minute. If USD continues to be soft in 2Q, MREITs, large-caps and MYR beneficiaries will probably still outperform in this quarter.

5. On the other hand, with exporter counters beaten down by over 20-30% in 1Q, we should watch this space coz much of the negative sentiments may have already been priced in and there could be some positive earnings surprise in the upcoming 1Q16 results released next month.

6. Construction is probably the only domestic-oriented sector that is least affected by USD movements coz Najib will need it, by hook or by crook. KImlun pleasantly surprised everyone by bagging the first job (darn it!). As fund houses will definitely like this sector, who are the best proxies to this infrastructure boom, in the big/mid/small space respectively?

7. Other large-caps sectors like banks and property also performed quite well in 1Q. I think the investor strategies going for this space is to bottom fish undervalued industry leaders, particularly those are MYR beneficiaries like Astro and Tenaga even though earnings ain’t gonna rebound in the near term. A few weeks into 2Q, there is also a trend that investors are moving down to mid and small caps as large-caps are getting increasingly richly valued.

8. Although oil prices recover a bit, but O&G counters continue their fall. Sona Petroleum even kena liquidated, with their balls tightly gripped by SC now. Who else will face the same fate and is there any profit to be made? And is the return high enough to justify the wait? As this is the first case, people now dunno when shareholders will get their monies back.

9. From bottom-up perspective, fund managers don’t mind holding good but beaten down O&G and plantation stocks. Who are they? Are Dialog and CBIP of these premium quality stocks? More research needed.

10. Finally, avoid bad sectors banks and telcos. Indeed, most of the returns could be attributable to sector selection. Telcos are the one of the worst performing sector and investors should wait until the dust settles first. Over at banks, safer and larger banks did outperform in 1Q16, thanks to foreign funds? Will they still outperform in 2Q16? Watch the Fed for any signals at their upcoming Apr 26-27 meeting.

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