Stocks to watch: Buy blue chips on dips

Bursa Malaysia is expected to dip this week before it attempts to move higher. Investors should accumulate blue chips on dips, especially finance, consumer and plantation stocks.

Dr Nazri Khan, Affin Investment Bank head of retail research, said the FBM KLCI is now ripe for a pullback towards the 1,420 support level.

“We see the pullback is necessary given the minor resistance level spotted at 1,450 and the fact that the FBM KLCI is short-term overbought after having a respectable three weeks of a near 140-point swing. We believe the weakness next week will be healthy,” he said.

In his market outlook, he said while there would continue to be external worries, sentiment will be firmer given the improved data from the US and Europe.

“Hence, we believe the rally is sustainable with more visibility on Europe, which has been the centre of the last two months of selldown.

“On the local front, the fact that the KLCI has [reached] seven straight positive days [the longest buying streak since April 2011] is an early sign of a positive trend reversal,” he said.

Nazri said there would be ample local positive news flow to add more steam to the current rally, which includes the start of the RM25 billion Kuala Lumpur International Financial District (KLIFD), the launching of the higher ceiling for the My First Home Scheme, rising banking mergers and the early 2012 election hype following the latest people-friendly budget.

Nazri says the FBM KLCI is now ripe for a pullback towards the 1,420 support level.

Plantations could continue to be in focus in the week ahead, as sentiment will be underpinned by a positive export outlook which saw crude palm oil futures closing at a two-week high last Friday. The CPO for December delivery closed RM62 higher at RM2,906 a tonne.

Reuters reported a positive export outlook and expectations of Chinese soya re-stocking offsetting economic uncertainty.

UOB Kay Hian Malaysia Research upgraded the plantation sector to “market weight” as the production peak is over and it expects better CPO price support once the supply risk eases.

“We also see value emerging in selected stocks after the recent selldown,” it said, maintaining its CPO assumption for 2012 and 2013 at RM2,700 per tonne.

“But we think CPO prices for 2012 could be higher because of lower supply, depending on the severity of the coming La Nina and potential return of El Nino in late 2012 or 2013,” it said.

Stocks to watch include TRC Synergy Bhd, RHB Capital Bhd, OSK Holdings Bhd, S P Setia Bhd and Boon Koon Group Bhd.

TRC and its partner have clinched a RM318.90 million contract to modernise the Brunei International Airport terminal. TRC unit Trans Resources Corp Sdn Bhd has received the letter of acceptance from the Brunei Economic Development Board for the project, which was tendered by the unit and partner Swee Sdn Bhd.

RHBCap and OSK are expected to see strong continued interest, with more upside after both financial institutions received the central bank’s approval to start talks for a possible merger.

As for S P Setia, the Securities Commission has approved Permodalan Nasional Bhd’s (PNB) takeover offer for S P Setia. The property developer said on Friday it had received the notice that  the SC “has approved the offer under the equity requirement for public companies vide its letter dated Oct 13”.

PNB had on Sept 28 served a takeover notice on S P Setia after its shareholding reached 33.16% or 590.502 million shares.

Other stocks to watch are Glomac Bhd and Pos Malaysia Bhd.

The Edge weekly reported Glomac is sitting pretty in a net cash position. With consistent profit growth over the past three years, the company’s improving financials have caught the attention of many. Glomac is likely to maintain its performance largely because it seems insulated from the turmoil in Europe and uncertainty in the US, which have adversely impacted Asia.


Written by Joseph Chin, theedgemalaysia.com