Malaysia Stock Market Review for Week Ending 22-August-2008

Hurrah…. Malaysian petrol price was lowered from RM2.70 to RM2.55 starting 23rd August 2008. We think this is indeed positive for the stock market as it opens on Monday. Cheaper petrol prices would translate into cheaper transport costs to businesses and a breath of relief to any household budget (to a smaller extent). We believe this approach is more pro-business rather than pro-people. Prices of goods and services are not likely to adjust downwards following the savings in costs of logistics. What we find more interesting in this petrol price adjustment is that it could be seen as the prelude of goodies in the up and coming Budget 2009. Just to recap, we had earlier expected the budget to be “people-friendly” (Check out our YouInvest Budget 2009 Wish-List written 28-Jul-2008).

Although government officials from the BN coalition had denied the petrol price adjustment being used as one of the tools to lure in votes in the up-coming Permatang Pauh by-election, we sense other wise. In our opinion, Mr. Anwar Ibrahim’s position is very strong in this constituent state as he and his wife had helmed this position for more than 20+ years. We guess everyone should have an idea of who’s going to win in this by-election but more importantly the quality of the victory. The government has definitely step up its ante in this event. Let’s list them down:

1. Datuk Arif Shah Omar Shah, a very fluent mandarin and hokkien speaking Malay BN candidate was chosen the go head on with Mr. Anwar Ibrahim who’s one of Malaysia’s most charismatic political speaker. If you didn’t know, Datuk Arif Shah Omar Shah gave his ceramah in mandarin and hokkien (linguistically very impressive in our opinion) to a Chinese crowd last Wednesday. Even though he may touched the hearts of some, but getting voters votes during the poll requires tangible actions where the current ruling party lacks.

2. Deputy Education Minister Dr. Wee Ka Seong had recently allocated RM1.2mn to 6 Chinese schools in Permatang Pauh on 19 Aug 2008, "coincidentally" during the run-up to the by-election.

3. The Election Day was set on 26-Aug-2008 a weekday? Why? Why not on a weekend like the
08-03-08 general election? Well, everybody knows that if the election was set on a weekday then there is high probability that the working class voters be absent from voting. So, voters from Permatang Pauh, do your responsibility choose diligently and be a responsible voter, we don’t want to see phantom votes and postal votes to sway the general opinion of politics in this country.

4. Petrol pump prices were down -15sen from RM2.70 to RM2.55 starting 23rd August 2008, 3 days before D-Day in Permatang Pauh.

Anyways, enough about politics, newsflow from corporate was still pretty dry and dull. The week continued on with companies reporting their second quarter performance results and will end until 1-Sep-2008. Performance in general was mixed, with some reported:

1. In-line with expectation results with a twist of negativity in the second half outlook amidst political instability, high commodity prices, high inflation and slower demand growth.


2. Below expectation results due to fluctuation in commodity prices, slower demand growth and rising costs.


3. Almost none of the results were above expectation this quarter. Even if we had beaten expectations, investors and analyst were still bearish and caution on the weaker second half outlook.
   

For the week, KLCI was down by -9.5pts (-1%) from 1,095.05 to 1,085.6pts.

Forecasts wise, we think the KLCI had been down a bit too much and a bit too long, so, we think there is a potential rebound in the market this week. This week, we think the market has 70% chance of going up and 20% chance of staying flat and only 10% chance of going down. As we run up to the Permatang Pauh By-election date (26-Aug-2008) and Budget 2009 (29-Aug-2008) the relief rally will continue with strength.

Stock on our watch list is MMC Corp.

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Malaysia Stock Market Review for Week Ending 15-August-2008

As expected in last week's forecast, the KLCI drifted lower this week. The benchmark index shed -25.26pts (-2.3%) led by extended selling down of banking and plantations stocks. Bumiputra Commerce (CIMB Bank) loss -95sen (-11%) after the bank reported weaker than expected profits and subsequently guided this year's net profit target downwards due to poor sentiment in the economy. Sime Darby, the world's largest plantation stock was down -35sen (-5%) on the back of declining palm oil prices. Stock market participation remain stubbornly thin despite the emergence of good value in selected stocks.

Some of our clients had asked if the stock market were to go back to 1997 or 2001 level. In our, the recurrence is most unlikely due to the stronger position that Malaysian corporates are now standing. In the yesteryears, Malaysian corporate had not exercised prudence in their capital structure, corporate debt levels were high, companies' valuation were lofty and future business prospects were pretty much in the air and not water tight. These days, it seems Malaysian corporate are more resilient and should weather through small economic shocks. Corporates in general have moderate debt levels and their capital structure are largely intact from the last round of restructuring post the 1997 Asian crisis. So we believe any slowdown in the economy will not result to sequential corporate blow-ups and corporates to belly up easily. So, we conclude the risk profile to invest in Malaysia stock market is safer than ever before.

Since newsflow continued to stay dry and scarce, we will just keep future updates short and sweet. As for stock under our watch list, MRCB is still on our list but he had dropped AirAsia this week.

Strategy: We expect the market to drift lower this week (60% chance), 30% chance to stay unchanged (+/-5pts) and only 10% chance of bouncing up. Bear in mind that all eyes are on corporate results reporting this month as they conclude their second quarter performance. Already we can see 2 out of 4 banks had guided their outlook downwards (ie. Bumiputra Commerce (CIMB Bank) and AMMB (AmBank)).

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Malaysia Stock Market Review for Week Ending 8-August-2008

888 (08-August-2008), what an auspicious number and the world's most eventful date. However, Malaysia's overall stock market last week trended lower. The KLCI lost -28.37pts (-2.5%) touching 1,120.31 on Friday's close. The fall was basically led by softening crude palm oil (CPO) prices which ultimately affected performance of plantation stocks. Poor performance of plantations stocks did not just began last week, but in fact started 3 weeks ago and was mentioned in our article dated (18-July-2008). Let's review some plantations stocks this week: IOI Corp -52sen (from RM5.50 to RM4.98); KL Kepong -110sen (RM13.20 to RM12.10); Sime Darby -80sen (from RM7.80 to RM7.00); Asiatic -45sen (RM6.40 to RM5.95); Tradewinds Plantations -38sen (from RM3.46 to RM3.08); virtually all of them were down. Like what he had previously mentioned, plantations stocks were generally facing selling pressure due to: [1] plantation stocks had performed extremely well in the last 2 years fueled by high CPO prices, so most of the investors are sitting on "deep-in-the-money" or ("un"cashed out) profit positions, hence investors sold them to unlock profit. [2] Since plantations stock are heavily owned by foreigners, a sluggish economic conditions in the domestic market and potential slowing down of global economy post Olympic 2008 would lead foreigners to unwind their investment position in Malaysia and similar emerging economies. [3] Since CPO prices had been associated with global crude oil (fossil fuel) prices (due to the bio-fuel factor) since last year, declining oil prices would also contribute to downfall of crude palm oil prices. We believe next week is going to be another down week for plantation stocks as crude oil (fossil fuel) prices dove US$4.82 (-4%) on Friday to US$115.20/barrel. Hurrahhhhh to consumers as we could expect the government to lower Malaysian petrol pump prices in the next review. Fingers crossed.

In terms of corporate news, Tan Sri Syed Moktar's proposal on related party transaction (RPT) to insert Senai Airport valued at RM1.95 billion and Aliran Ihsan Resources Bhd at RM240 million was not received well by MMC investors. MMC shares were sold down significantly by -23.4% (65sen) from RM2.78 to RM2.13 on the backdrop that the injection of these 2 businesses were not going to enhance the profitability of MMC but on the reverse putting a dent to company's profit. In fact, analysts were saying that the price tag of Senai Airport was just too high considering its loss-making situation. What more this is a related party transaction. RPT is definitely a bad word, unappealing to investors during bearish times. For the benefit of those that do not understand whats an RPT. RPT means a proposed business transaction whereby the proposing party is a buyer and a seller at the same time. For the MMC's case, Tan Sri Syed Moktar is proposing for MMC (the company where he owns 51.8% stake) to buy over Senai Airport (Syed Moktar owns 100%) and Johor's bulk water supplier Aliran Ihsan Resources (Syed Moktar is a major shareholder).

Strategy: We expect the general market again to be down this week dragged by another round of sell offs in the plantations sector. However, easing crude oil (fossil fuel) prices and commodity prices should actually be better for the general economy. This week we are downward bias, so 60% chance of market going down; 30% chance of market staying flat and only 10% of market going up.

Stocks Alert. Perhaps its time for us to give out some stock tips after several requests from our friends. Well, as opposed to calling these advise as stock tips, we shall just call it "stock we are looking at". The stocks that we list out need not necessary be a buy call, we could also highlight sell calls as well. Our picks are purely for note-taking purpose only.

"Stocks we are looking at" this week are (1) Airasia and (2) MRCB. If you would like to know why we think both stocks are on our list then you have to email us for the reasons. On that note, since its the Olympic season, Enjoy the Game, Think Green and World Peace.

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Malaysia Stock Market Review for Week Ending 01-August-2008

Contrary to general expectations of a short-lived relief rally, Malaysian stocks continued their upward climb this week. The KLCI was up +1.5% (+17.35pts) from 1,141.75 to 1,159.10. The prolonged rally was generally sustained after easing crude oil prices last week. Crude oil futures currently trade US$125.10/barrel, -14% lower than its peak US$145/barrel. We believe global oil prices could be jittery at this point after news broke out this week. [1] Israeli PM’s spoke about Iranian “nuclear breakthrough” which could spark UN interventions and also potential constraint in supplies. [2] Tropical storm Edouard is currently moving into the Mexican gulf could see supply disruption in the short term as oil production facilities shuts down.

Corporate newsflow remains dry and short with little exciting talks in the market. This week’s corporate news focused mainly on Maybank. Share price of Maybank rose +40sen this week after Bank Negara Malaysia (BNM) revoked its earlier approval to allow Maybank to buy Indonesian bank - Bank Internasional Indonesia (BII). The revocation was prompted after Indonesian regulators pass through a new rule on July 2008 which requires acquiring parties of any Indonesian bank (in this case Maybank) to sell out 20% stake in 2 years. For the benefit of those who do not follow this story, Maybank was willing to pay “exorbitant price” for BII citing reasons for regional expansion. Understandably expansion is essential for the well-being of any businesses, however, if the price of acquiring is too high, then it does not make any economic sense. Instead of improvement, the acquisition of BII was seen as risky and not justifiable by market pundits. Share price of Maybank plunged -RM2.00 (-22%) from RM8.95 ( 25th March 2008 - the day before its first announcement) to RM6.95 (7th July 2008 – 2008 year to date low). Without going too much into technical jargon and details about this acquisition, we understand that the “exorbitant pricing” was so controversial that Maybank’s CEO was asked to present this case in one of the parliament seating a few months ago. So, when this news broke out, Maybank share price recovered.

On the negative end of corporate news, the Government had scaled down UEM Builder’s Second Penang Bridge contract sum by -40% to RM1.3bn. Top glove (the world’s biggest latex glove manufacturer) issued profit warning over the weekend on the back of slower demand and high latex and energy costs.

Strategy: We predict the week ahead to be relatively quiet given jittery oil price movements and mixed sets of US economy indicators. Again, we are reiterating our bullish stance (slightly lesser this week) on equities and will be increasing our exposure if there are any significant dips. We think dips of -50pts and below will be a good opportunity to buy or average down. In terms of market direction, we think market will be 60% relatively unchanged (+/-5pts), 30% chance of moving downwards (>-5pts) and only 10% chance of moving upwards (>+5%). The market is likely to take a breather this week after rising 154pts in the last 2 weeks. PHEW ……

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