OSK foresee that market will recover in May as they believe the 1Q2011 will at least meet downbeat expectations after the past 4 quarters of disappointments. With the potential for reasonable results, OSK believe the market will shift back to fundamentals and look back at Big Caps.
Strategy for the month would be to Buy fundamentally strong Big Caps as well as Trade on the Property sector as the newsflow here could resume after a couple of months hiatus.
OSK Top Buys are big caps with Maybank, CIMB, and Axiata are top banking & telcos stocks. AirAsia’s reintroduction of fuel surcharges and upcoming listing of its associates should help its share price while UEM Land is an excellent proxy for newsflow in the property sector
The table below are the target price for OSK’s May 2011 top picks.
OSK maintain UNDERWEIGHT call on autos as the bottlenecks in Japan to lead to a shortage of vehicles in Malaysia despite the buoyant demand in the past quarter.
Auto companies’ earnings are likely to be hit in 2Q and 3Q as poor economic efficiency and spiraling raw material prices pinch margins.
OSK expect vehicle sales in the upcoming months to decline gradually and bottom in August or September as vendors and assemblers are starting to hint of depleting inventory.
OSK mid cap BUYs in the sector are Proton and also BUYs on all the autopart makers, with their diversified revenue base, will mostly continue to supply components to the automakers.
Below are the target prices and ratings for selected stocks in automotive sector.
Masterskill Education Group Berhad (MEGB, 5166) was incorporated in1997. It was listed in Bursa Malaysia Main Market on 18th May 2010 at an IPO price of RM3.80. The shares price drop to below RM1.70 in March 2011 due to heavy share disposal by their foreign investor.
Regardless, on why foreign investors decided to dispose their shares, MEGB has a recession proof business with a good growth prospect.
They are going to pay good dividend yield too. In the IPO prospectus, MEGB specify that they intend to pay in between 50% to 60% from net profit as dividend. For financial year end 31st December 2010, they keep their promise and pay 60% of net profit as dividend. This translate to 14.9 sen & dividend yield of 7.2 %. This clearly more than double of current fixed deposit rate. Share price recover improve after 2010 final dividend announcement.
There are a few research house make buy recommendation for MEGB. The table below are the latest fair value or target price.
ECMLibra Investment Research continue to be Overweight on the sector as news flow continues to be heavy and very positive. There would be many more contracts to come from marginal fields, development projects (like Tapis), and deepwater developments.
Besides that, Petronas’s intention to increase drilling activity will also enhance the need for support vessels and drilling services and equipment.
On notable major shareholding changes, Employees Provident Fund was seen adding shares across the board, particularly in Petronas Chemicals, SapuraCrest, Wah Seong and KNM.
Table 1 :- Selected Oil & Gas Stocks Fair Value, Target Price & Dividend Yield
Markets rebounded in March with the KLCI ending 1Q in the black. Moving into 2Q, OSK foresee there will be some short term volatility but they are confident on their year-end KLCI target of 1680 pts.
OSK also advise investors to buy Big Caps on potential rebounds while focusing on the more defensive Small Caps given their superior performance over the past few months. OSK’s favourite sectors remain Banks, O&G, Property and Construction in the mid- to short-term while the longer term buys are Media and Healthcare.
The table below are the target price for April 2011 top picks.