Outlook MIDF sees 3Q volatility, amends its Top 10 stock picks

Outlook MIDF sees 3Q volatility, amends its Top 10 stock picks
Business & Markets 2013
Written by Kamarul Anwar of theedgemalaysia.com
Monday, 01 July 2013 13:38

KUALA LUMPUR (July 1): MIDF Amanah Investment Bank has replaced six stocks for its 10 favourites as the third quarter of the year rolls out, while it maintains the year-end target of 1,800 points for the FTSE Bursa Malaysia KLCI (FBM KLCI).

MIDF’s new Top 10 stock picks, as revealed in today’s note, comprise DAYANG ENTERPRISE HOLDINGS BHD [] with a target price (TP) of RM6.08, GLOMAC BHD [] (TP RM1.46), AIRASIA BHD [] (TP RM3.98), TELEKOM MALAYSIA BHD [] (TM, TP RM6.75), SapuraKENCANA PETROLEUM BHD [] (TP RM4.86), UNISEM (M) BHD [] (TP RM1.08), SIME DARBY BHD [] (TP RM10.90), Gas Malaysia Bhd (TP RM3.65), STAR PUBLICATIONS (M) BHD [] (TP RM3.15), and MALAYAN BANKING BHD [] (Maybank, TP RM11.30).

“We made six relegations to our earlier list of Top 10 stock picks. Sunway Bhd, TENAGA NASIONAL BHD [] and GAMUDA BHD [] were relegated as they rose by 25.4%, 15.6% and 14.5% respectively against KLCI’s 5.2% during the past three months, hence their near-term upside potentials are deemed as limited.

“Furthermore, the relegation of Malaysia Airports Holdings Bhd and WCT BHD [] were decided upon as these stocks are susceptible to the financial headwinds related to the further delay in the completion of klia2. Felda Global Ventures Holdings Bhd, on the other hand, is replaced by Sime Darby,” MIDF explained.

The research house added that while the knee-jerk market reactions over the US Federal Reserve’s tapering of its US$85 billion (RM269.66 billion) a month of asset purchase may be short-term in nature, the process may take quite a while for “hot money” investors to unwind their positions.

“Hence the selling pressures can last for weeks or even months to come. During this period, we can also expect heightened volatility due to the flare up in tug-of-war between the so-called optimist and pessimist elements in the market,” MIDF opined.

Last month, the Fed’s chairman Ben Bernanke confirmed that the central bank of the world’s biggest economy will reduce the quantum of its third round of quantitative easing (QE3), which could happen as early as the later part of this year.

The announcement has spooked many an investor, prompting bouts of selling among foreign investors.

In view of this on-going phenomenon brought forth by the Fed, MIDF said its Top 10 picks were recommended on the basis of inherent earnings quality, good earnings growth potential, and/or attractive valuations.

MIDF also retains its target of 1,800 points for the KLCI by the end of this year, which is equivalent to 16.4 times of the current year’s earnings.

“The market may be somewhat perturbed by the liquidity impact of tapering QE3. However, as stated earlier, we do not expect the liquidity rollback to go any length ahead of the recovery in the US real economy. Furthermore, as the ‘hot money’ dust settles, we expect the market to regain its upward thrust in a measured manner, conceivably towards the last quarter of the year,” the research house commented.

MIDF also said the government will likely to continue to award big projects in its effort to continue infrastructure upgrades.

“Ongoing and future implementation of mega projects such as the expansion of the Mass Rapid Transit, Light Rail Transit and Commuter Rail systems together with the proposed implementation of the national High-Speed Rail (HSR) network are expected to generate further growth in the CONSTRUCTION [] sector, while boosting incomes and stimulating growth,” said MIDF.