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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The murky outlook in the next two quarters also suggests that investors should avoid cyclical steel stocks. However, as the recent selldown may have fully priced in the negative developments, we are mostly NEUTRAL on the sector and companies under our universe except Lion Industries, on which we have a Trading BUY.
If you are going to invest in Stell Stocks now, remember the following
- Average selling prices (ASP) of steel products are diving after peaking in April 2010.
- Energy subsidy cut just around the corner.
Taking the above factor into consideration, below are the target price for steel sector.
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2H10 would be an exciting period for the O&G industry, especially in 4QCY10, during which we expect most of the contract to be awarded, alongside the listing of MMHE, which may lead to a re-rating of the share prices of most O&G companies, which are currently trading at single digit PER valuations.
However, we do not expect to see strong quarterly performance by most O&G companies in 2H10 and would not be surprised if they reported results that are below our and the industry expectations as there was a stark shortage of new contracts late last year and in 1H10. This led to poor utilization rates and margin compression as a result of strong market competition.
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Construction, Property and Utilities most affected. As can be expected from a development plan, the Construction and Property sectors were the most impacted. While we were pleased to note that there was no cut to the development budget, we also noted the shift to PPP-type projects and remain skeptical that funding can be sourced simultaneously for the LRT extension, Double Track extension and KL MRT projects. We prefer Sarawakian companies for construction play given the continued emphasis in the 10MP.
As for property, while noting that land value could be unlocked with the development of Sungai Buloh, Sungai Besi airport and Kampung Baru, we are concerned that existing commercial property values could be capped if the launch of these new developments is not properly planned.
Finally, on Utilities, the LNG plant and new coal power plants coupled with planned subsidy reductions should help assuage concerns of a looming power crunch although political will is needed in cutting the subsidies.
A selection of beneficiaries. In distilling down the sectoral impact, we believe that among the notable beneficiaries of the 10MP will be:
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In 1H2010, investors showed interest in beneficiaries of Government fiscal stimulus such as construction and steel, but for 2H2010, we prefer sectors that will benefit from private sector growth and consumption. We believe that private sector growth will gradually take over from public sector pump priming to drive the economy into 2011. As such, our Top Sectors for 2H are Autos, Banks, Consumer, Healthcare, O&G and Utilities.
Our 2H2010 top buys are extracted from our preferred sectors for 2H, namely Autos, Banks, Consumer, Healthcare, O&G and Utilities, with the exception of Axiata, which is a regional growth story. We advise investors to enter the more cyclical sectors of Banks and O&G towards the end of 3Q2010.
The table below are the top buys for Big and Small Caps
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