Consumer Products

The prices of food commodities have been on an uptrend due to a perceived tight supply. Amid concerns of how this will affect bottomlines, OSK believe that the share prices of food companies will lag in 2011.

OSK think that the near term negative impact on bottomlines is inevitable as companies adjust to higher raw material prices. On the other hand, OSK believe the retail industry will continue to deliver good earnings in 2011 driven by strong consumer spending and companies’ expansion plans.

OSK downgrade the F&B subsector to NEUTRAL, with CI Holdings and QL Resources as our top picks while we maintain OVERWEIGHT on the retail industry, with Parkson remaining our favorite stock.

Below are the target prices and ratings for selected consumer product stocks.

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2010 proved to be a decent year for OSK’s Small Cap Jewels although their performance was eclipsed by the liquidity-infused rally, which benefited the bigger caps, particularly from 2H2010.

Of the 50 stocks profiled in handbook, half posted absolute returns in excess of 20%, with 49% outperforming the FBM Small Cap and FBM KLCI indices.

While the smaller caps are expected to bask in the glory their larger cap peers in 2011, investors should not ignore names with good longer term potential that are trading at attractive valuations.

OSK like small caps in the construction, property, oil & gas and consumer sectors as beneficiaries of the ETP, elections and earnings themes.

The table below are the 2010 performance of OSK Top 50 Small Jewels and performance since OSK’s Small Cap Jewels report released in April 2010.

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We are OVERWEIGHT on the retail sector. Besides the favorable outlook, the sector is one of the highest dividends yielding, which makes it a good pick in anticipation of a volatile 2H10. Our top pick is Parkson Holdings (PHB) (BUY, TP 6.75), which is poised to ride on the strong recovery in China’s domestic consumption and Zhulian (BUY, TP RM3.77), given its solid fundamentals compared to its peers, as well as its attractive dividend yield.

Below are the target price for consumer product sector.

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OSK Research expects companies in its top 50 Malaysian small-cap list, dubbed “50 Jewels”, to register between 5 per cent and 15 per cent growth in earnings this year, driven by their strong fundamentals, as well as a recovery in the economy.

In their 2009 small-cap list, 32 out of 50 of them having posted absolute returns of 50 to 375 per cent, outperforming the benchmark index. So I hope 2010, 50 Jewels will perform reasonably well.

OSK Research also targeted the benchmark FTSE Bursa Malaysia KL Composite Index to hit 1,465 points by year-end. It also placed a fair value of 1,580 points on the index in 2011.

The table below is the top 10 companies in OSK Small Cap 50 Jewels  and their target price.

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