Window dressing activities in 1Q14

by **Cals** Fri 28 Mar 2014, 11:58

Business & Markets 2014

Written by Lee Cheng Hooi

Friday, 28 March 2014 09:30

MAJOR Asian markets except China closed higher yesterday, reversing earlier losses as global market sentiment remained mixed after weighing between an improving global outlook and on concern that tension in Ukraine may escalate. American markets fell on Wednesday night, led down by a softer technology sector (via weakness in King Digital Entertainment’s initial public offering and Facebook).

The SP 500 index fell 13.06 points to close at 1,852.56 points while the Dow tumbled 98.89 points to end at 16,268.99 on Wednesday night.

The FBM KLCI traded in a firmer range of 25.84 points for the week with higher volumes of 1.94 billion to 2.08 billion shares done. The index closed at 1,846.87 yesterday, up 7.73 points from the previous day as blue-chip stocks like Axiata Group Bhd, IOI Properties Group Bhd, Petronas Dagangan Bhd, RHB Capital Bhd and UMW Holdings Bhd caused the index to move up on late local first quarter of 2014 (1Q14) window dressing activities yesterday.

The index rose on a rally from the 801.27 low (October 2008) to the previous 1,826.22 all-time high (May 2013) and it represents an extended Elliott Wave “Flat” rebound in a “Pseudo-Bull” rise completed. The price movements in the index in the next few months following May 2013 were trapped in a rangy consolidation with key swings of 1,723.74 (low), 1,811.65 (high), 1,660.39 (low), 1,805.15 (high), 1,759.66 (low), 1,882.20 (high), 1,769.80 (low), 1,838.69 (high) and 1,802.88 (low).

The index’s daily signals (like CCI, DMI, MACD, Stochastic and Oscillator) are all positive. As such, its firm support levels are seen at 1,802, 1,820 and 1,846, while the resistance areas of 1,849, 1,852 and all-time high of 1,882 will witness some very heavy selling. Our rebound retracement target of 1,839.26 (62% level) had capped the index on March 6. However, the 1Q14 window dressing activities late this month have caused the index to break above that key level. Thus, we may visit upside targets of 1,871 and 1,882 in the medium term yet again.

Its simple moving averages (MA) depict an emerging uptrend for its daily, weekly and monthly charts. Due to its firmer chart signals, we believe investors will continue to adopt a “buy on dips” philosophy for the KLCI.

Due to the firmer tone for the KLCI, we are recommending a chart “buy” on Inari Amertron Bhd, which broke above the RM1 billion market capitalisation mark on March 7 after our weekly write-up in October 2013 when the market capitalisation was just about RM560 million. The strong rise in the stock can be attributed to investor optimism on its future earnings potential as well as the potential transfer to the Main Market of Bursa Malaysia.

For 2Q ended Dec 31 of financial year 2014 (2QFY14), Inari’s profit before tax (PBT) improved significantly to RM26.6 million from RM11.3 million in 2QFY13. The improved profitability was attributed to the increase in revenue, strong US dollar and favourable gold prices during the period as well as consolidation of revenue and profit generated by the newly acquired Amertron Group. Going forward, Inari expects rising demand to contribute positively to its outlook, as demand for smartphones and tablet computers is expected to grow further in the near term.

A check on Bloomberg consensus reveals that only one research house has coverage on the stock, with a “buy” call. The stock is currently trading at a fair historical price-earnings ratio of 14.8 times but a high price-to-book value of 5.9 times. Inari has a fair indicative 12-month dividend yield of 2.29%.

Inari’s chart trends on the daily, weekly and monthly time frames are very strong. Its share price made an obvious surge since its weekly Wave-2 low of 37 sen in March 2013. Since that 37 sen low, Inari surged to its recent March 2014 high of RM2.87.

Its chart has moved into very strong daily, weekly and monthly uptrends to its recent March 2014 high of RM2.87. As it broke above its recent key critical resistance levels of RM2.31 and RM2.54, look to buy Inari on any dips to its support areas as the moving averages depict very firm short to medium term uptrends for this stock.

The daily, weekly and monthly indicators (like the CCI, DMI, MACD and Oscillator) are very positive and now depict the obvious indications of Inari’s eventual move towards much higher levels.

We expect Inari to remain very well sought after on dips towards its support levels of RM2.31, RM2.54 and RM2.78. It may attract minor profit taking at the resistance levels of RM2.85 and RM2.87. Its upside targets are now located at RM3.31, RM3.69, RM3.82 and RM4.51.

[You must be registered and logged in to see this image.]

This article first appeared in The Edge Financial Daily, on March 28, 2014.