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.
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
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.
Standard & Poor’s recently issued a comprehensive report on Malaysia and make 25 stocks picks that they believe will outperform FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) in 2010.
This year, share prices are not as cheap as in early 2009 and the market will be more volatile. Standard & Poor’s however, maintain FBM KLCI target at 1,400 points in 2010 for an 11% return.
They believe the chosen stocks will be the best poised to benefit from the economic recovery and with relatively comfortable valuations to hold up against the increased volatility in the market. The managements of the chosen company also have a proven track records. Some of the chosen companies are also the dominant players in their fields.
Below is the 25 stocks that Standard & Poor’s pick for 2010.