We expect the market to rebound in February as fundamentals remain intact and the 4Q2010 results reporting season should see analysts upgrading their earnings again. We like the Banks, Oil & Gas and Consumption related sectors for February. Our Top Buys center on companies anticipated to display strong profitability (CIMB, AirAsia), laggards (KPJ) and rebounding stocks (Kencana, SP Setia).
The table below are the target price for February 2011 top picks.
Despite the rounds of interest rate hike and the gradual cut in petrol subsidy, improving consumer sentiment and a buoyant economic landscape boosted 2010 vehicle sales to end the year with a record 12.7% y-o-y growth. A healthy economic outlook, accommodative lending rates and the slew of new models in the pipeline are expected to fuel TIV growth by 2% in 2011 to 617,569 units.
However, industry margins expected to dip on inflationary pressure due to costlier raw materials and components. Nonetheless, earnings grow at a respectable pace given the favorable demand and strengthening ringgit in 1H. Maintain OVERWEIGHT on the automotive sector, with UMW and Tan Chong as top picks.
Below are target price for selected stocks in Automotive Sector.
Despite the rather moderate earnings growth projections for 2011 based on a moderate economic growth forecast, media sector upgraded from Neutral to Overweight as the thematic factors such as an impending general election and influx of foreign investors would be the sector’s key upside catalysts in 2011.
Media Chinese (MCIL) has an attractive valuation proposition as the stock is currently trading at below 10x PER on CY11 EPS. Given that its largest shareholder owns some 55% of MCIL shares, as well as the stock’s attractive valuation, there is a strong possibility of MCIL being taken private.
Nevertheless, Media Prima (MPR) is good choice for investors seeking the widest exposure in the media sector, backed by the group’s position as the only integrated media player in Malaysia with exposure to all media platforms.
Despite the windfall from its special dividend last year, the medium and long term prospects for Star remain somewhat unattractive, especially if one considers its relatively expensive valuation. As such, Star has NEUTRAL recommendation.
Below are target price for selected stocks in Media Sector.
The share prices of O&G stocks are undergoing a re-rating, largely fuelled by positive market sentiment and strong news flow. Going forward, partnerships or actual contract awards will be the main ‘push’ factor for further share price upside and the lucky companies will continue to outperform those which lack news flow. Average sector PER valuation is raised from 13.2x to 16.6x. Maintain Overweight on the sector, with top picks being Kencana Petroleum, Alam Maritim, Petra Perdana and Petra Energy.
Below are target price for selected companies in Oil & Gas Sector.
Maintain OVERWEIGHT. We believe that our RM18bn domestic jobs win target for 2011 could likely be breached should the various projects under the ETP kick off faster than expected. Given the likelihood of an early General Election this year, we expect the momentum of news flow within the sector to accelerate.
Our top sector pick is Gamuda for its MRT exposure, with its Vietnam property launches and resolution of the water assets consolidation as the wild card. For the small caps, we like Ahmad Zaki. In view of the state elections which must be held by May, we continue to like the Sarawak theme and highlight sector laggard Naim Holdings. Investors may also consider looking at Iskandar construction plays, with Kim Lun as key proxy.
Below are the target price for selected stocks in construction sector.