The global sell-off in equities has definitely raised the risk of an early recession. While it’s still early days yet to say that a bear market is taking hold, OSK feel that it is prudent to highlight a list of alternative defensive stocks for the longer run that would benefit in the event a recession does set in early.
These stocks will benefit from a drop in incomes and commodity prices and are generally more inward looking as OSK believe domestic incomes should be more resilient.
The tables below are OSK’s alternative stocks which contains, target price, rating & the reason for the selection.
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It does look like latex price won’t be going anywhere for now. The commodity has of late been locked between RM8.61/kg (recent low) to about RM11.00/kg (its all-time high).
This price band is attributed to a clash between 2 factors, namely heavy rain and severe floods in southern Thailand resulting in a scarcity of latex supply, being offset by Weaker Japanese auto sales after the devastating earthquake created an auto parts shortage that will dampen tire demand.
Share prices of Top Glove, Supermax and Kossan have remained above their recent lows, a sign that the anticipated selldown in the earlier months has been well absorbed.
OSK maintain Overweight on the sector with top picks still remain Top Glove, Supermax and Kossan. The risk is if the oil price shoots past its record high of USD147/barrel on the continuing turmoil in the Middle East which will likely cause the prices of all commodities to spike up, including that of latex.
Below are the target prices and ratings for selected rubber glove stock.
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So far, 2011 is a good year for Initial Public Offering (IPO) listing in Bursa Malaysia. At the time of writing, there were 14 new IPOs listed. Out of these figure 8 IPOs were listed in the Main Market while 6 were listed in ACE Market.
All the IPOs debuted higher than IPO price on the first day of listing. However, 3 out of the stocks close lower than IPO price at the time of writing.
If you are interested to apply for upcoming IPO, take a look at the following table which shows the upcoming IPO for 2011.
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OSK believe the worst is over for rubber gloves industry. This is on the basis that latex price expected to start on a downtrend. Since latex price makes up about 60% of rubber glove manufacturers’ total production cost, any decline would prompt an earnings and profit margin re-rating.
If the latex price does not decline, it will remain flat as the commodity’s scarcity would no longer be a concern, be it for genuine buyers or speculators due to slowdown in the Japanese automotive industry following the earthquake. This would result in lower tyre usage, which will result in more rubber being made available in the market.
Finally, since most of the rubber glove stocks have bottomed and their valuations have returned to single digit PERs, OSK recommended that investors take a re-look at these stocks. OSK top picks for the sector are Top Glove, Supermax and Kossan.
Below are the target prices and ratings for selected rubber glove stock.
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