Weekly Strategy
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Monday, August 30, 2021 FBMKLCI: 1, 590 .16 THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* WWeeeekkllyy SSttrraatteeggyy Market View, News in Brief: Corporate, Economy, and Share Buybacks Kaladher Govindan Tel: +603-2167 9609 [email protected] www.taonline.com.my Market View Profit Taking Consolidations Likely but the Bull Market is Intact The local blue -chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) rallied to a fresh two-month high last week sparked by easing domestic political uncertainties following the appointment of Datuk Seri Ismail Sabri Yaakob as the 9 th Prime Minister, and was sustained by foreign buying in index heavyweights, on the positive perception that more political stability will fuel economic reopening momentum. Week-on-week, the FBM KLCI surged 72.13 points, or 4.75 percent to 1,590.16, with gains in Public Bank (+26sen), Tenaga (+53sen), Press Metal Aluminum Holdings (+49sen), IHH Healthcare (+61sen) and CIMB (+25sen) contributing most of the rise. Average daily traded volume last week moderately increased to 4.35 billion shares compared to the 4.03 billion shares the previous week, while value rose to RM2.88 billion against the RM2.16 billion average the previous week. The newfound strength in the local equity market is expected to last but could be subjected to bouts of profit taking consolidations to neutralize the overbought conditions as the benchmark FBMKLCI continues to rise on strong signs of political stability and likely full reopening of the domestic economy by this November. The positive move by the newly minted prime minister to meet up with leaders of the main opposition parties from Pakatan Harapan last week and their willingness to throw support behind the prime minister when a motion of confidence is tabled in parliament in September have added stability to the current government. In fact, obtaining support from the opposition bloc of 88 members of parliament (MPs) will solidify his current position with 114 MPs already backing him. In my view, if this turns out to be true, the strong support negates the need for a general election until it is due on or before 16 July 2023. With previous cabinet almost intact under the tutelage of the new prime minister, the almost two-year period between now and the next general election provides a golden opportunity for the current government to pursue the economic and parliamentary reform agenda more aggressively without much political hinderance. As such, with Covid-19 vaccinations progressing well and the economy slated for full reopening by this November, there is every reason to believe that this equity market rebound has more legs as the FBMKLCI extends rally. The tabling of 12 MP and Budget 2022 in Dewan Rakyat on September 20 and October 29 respectively should provide some excitement for investors to increase their equity weightings as they anticipate the government to announce more strategic initiatives to complement the National Recovery Plan and to propel long-term economic growth. Foreigners should add to the lustre with their current equity holdings of 20% at more than a decade low. On the external front, the US Fed Chair Jerome Powell signaled last Friday in the annual Jackson Hole Economic Policy Symposium that the central bank may begin winding down its emergency bond buying program this year but a rate hike may materialize only later next Page 1 of 11 30-Aug-21 year. He acknowledged that the rapid reopening of the economy has led to an increase in inflation, as shown in the 4.2% and 3.6% YoY increases in the July headline and core personal consumption expenditures respectively, which were well above the Fed’s 2% long-run target. However, he was consistent with his view that the spike in inflation could prove to be temporary as the inflationary pressures are not broad-based, there are signs of moderation in prices of goods and services mostly affected by the pandemic and reopening, and little evidence of wage increases that might threaten excessive inflation. He added that the Fed will continue to hold the target range for the federal funds rate at its current level until the economy reaches conditions consistent with maximum employment, and inflation has reached 2% and is on track to moderately exceed 2% for some time. Investors interpretate this as a gradual approach to monetary tightening and pushed up the US equities higher last Friday. Learning from its mistake 2013 when the abrupt announcement of reductions in bond purchases led to a taper tantrum, the Fed has been managing market expectations well so far. Thus, any eventual pullback in pricey US equities, probably later this year, is expected to be orderly and is not expected to trigger a rout in global equities. Developing Asia, including Malaysia, should benefit from the return of foreign investment flows as funds move in search of higher returns in undervalued equity markets. As such, reiterate our call to remain invested in mostly undervalued blue chips in the banking, plantation and telecommunication sectors apart from picking up recovery plays in the building materials, consumer, gaming, oil & gas and property sectors. (THE REMAINING OF THIS PAGE IS INTENTIONALLY LEFT BLANK) Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. Kaladher Govindan – Head of Research TA S ECURITIES HOLDINGS BERHAD (14948-M) A Participating Organisation of Bursa Malaysia Securities Berhad Me nara TA One 22 Jalan P. Ramlee 50250 Kuala Lumpur Malaysia Tel: 603 – 2072 1277 Fax: 603 – 203 2 504 8 www.ta.com.my Page 2 of 11 30-Aug-21 News In Brief Corporate Yinson Holdings Bhd (Not Rated) through its wholly owned subsidiary Yinson Acacia Ltd has entered into a binding Memorandum of Understanding with Enauta Energia S.A. to engage in exclusive negotiations for the potential supply and charter of a floating production storage and offloading unit for the Atlanta field in the Santos Basin, Brazil. The memorandum is in line with Yinson’s ambitions to strengthen its presence in Brazil. (Malaysian Reserve) Yinson Holdings Bhd (Not Rated) via its indirect wholly owned unit Yinson Renewables Pte Ltd, has signed a collaboration agreement with Plus Xnergy Services Sdn Bhd to jointly invest and develop solar photovoltaic (PV) projects via power purchase agreement schemes within and beyond Malaysia. Focusing primarily on commercial and industrial rooftop solar PV projects, Yinson and Plus Xnergy aim to build an asset portfolio of up to 250MW within the next three years. (The Star) Dialog Group Bhd’s (Not Rated) wholly-owned subsidiary Dialog Fabricators Sdn Bhd (DFSB) has inked a joint venture agreement with China-based company Morimatsu Technology Company to collaborate and provide one-stop engineering fabrication services for critical process equipment, pressure vessels and facility solutions. This is to support various industries and to serve its customers locally and internationally from DFSB’s facility in Pengerang. (The Edge) Kerjaya Prospek Property Bhd (Not Rated) is buying a parcel of leasehold land in Sungai Buloh, Selangor for RM42mn cash, to expand its landbank size. Barring any unforeseen circumstances, the exercise is expected to be completed by April 2022. (The Edge) Malaysian Resources Corp Bhd (Not Rated) proposed to buy 22 acres of leasehold land near Ipoh, Perak for RM31.5mn from major shareholder Tan Sri Mohamad Salim Fateh Din. The subject properties are located opposite a proposed mixed development to be undertaken by SIDEC in Simpang Pulai, Perak. (The Star) Malaysia Airport Holdings Bhd said the tender for Kuala Lumpur International Airport’s Automated People Mover is now at the final stage of the evaluation process. Separately, Malaysia Airport is allocating between RM600mn and RM700mn capex for its Airports 4.0 digital initiative for the next five years. (Bernama) Axiata Group Bhd said the planned merger between its unit Celcom Axiata Bhd and Digi.com Bhd depends on the Malaysian Communications and Multimedia Commission now as both parties had completed their side of the proposal. (The Edge) Bursa Malaysia has granted its approval for the listing of 855.1mn new shares that Fintec Global Bhd (Not Rated) will issue for its proposed private placement. This is to raise RM19.2mn fresh capital to build a glove factory in Chemor, Perak, where its associate company AT Systematization Bhd’s glove manufacturing plant is located. Fintec holds a 9.2% stake in AT Systematization. (The Edge) Focus Dynamics Group Bhd (Not Rated) has emerged as the largest shareholder with a 16.7% stake in Green Ocean Corp Bhd (Not Rated), after Focus Dynamics acquired the entire 351.9mn new shares earmarked under Green Ocean’s private placement to raise money which will finance Green Ocean’s planned diversification into rubber glove manufacturing. (The Edge) Page 3 of 11 30-Aug-21 Ornapaper Bhd (Not Rated) said its subsidiary Ornapaper Industry (M) Sdn Bhd has been ordered by the Ministry of Health to shut its factory in Melaka, after several employees tested positive for Covid-19. The factory will be closed till Sept 10 for sanitisation purposes. (The Edge) Apollo Food Holdings Bhd’s (Not Rated) Johor manufacturing facility has resumed operations after thorough disinfection was carried out. The confectionary had been instructed by MoH to temporarily halt operations for seven days until Aug 25.