A day after Prime Minister Mario Monti announced that Italy’s debt will reach a post-war record high this year, the Treasury started tapping investors with the sale of as much as €7.5 billion (RM29.9 billion) of bonds. Italy’s bond yields declined on Wednesday even after the government announced that its debt will rise to 130.4% of GDP from 127% last year as the nation borrows to contribute to bailouts and pay arrears to government suppliers.
The government managed to keep its budget deficit within the European Union’s (EU) limit of 3% of GDP, easing some of the concerns over the debt level. The Dow rose 128.78 points to close at an all-time closing high of 14,802.24 on Wednesday as China imports increased and Japan reiterated its stimulus plans.
In Malaysia, the market remained buoyant after the nomination and polling dates were announced on Wednesday. The FBM KLCI traded in a firmer range of 26.53 points for the week with volumes of 1.07 billion to 1.13 billion done. The index closed at 1,707.04 on Wednesday, up 10.84 points from the previous day as blue-chip stocks like British American Tobacco (M) Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd, Petronas Dagangan Bhd and Sime Darby Bhd caused the index to end higher on further buying activities.
After the 1,590.67 November 2012 low, the KLCI had scaled up towards a previous all-time high of 1,699.68 on Jan 4. The index broke its critical 1,682 support on Jan 16 and plunged to its recent low of 1,597 on Feb 7. The index’s rebound stalled at 1,664.39 (March 12) and has dropped off since that high and made a base on 1,613.94 (March 18). A surge to a fresh all-time high of 1,710.35 took place on Wednesday. As such, the key support levels are seen at the 1,664-, 1,699- and 1,707-levels, while the resistance and all-time high of 1,710 may offer token selling activities.
The current rebound rally from the 1,597 low (February 2013) to the 1,710.35 all-time high has negated the “Head and Shoulder” (H&S) bearish pattern.
However, for the longer-term, the rise from the 801.27 low (October 2008) to the current all-time high of 1,710.35 represents an extended Elliott Wave “Flat” rebound in a “Pseudo-Bull” rise.
Tactically, investors may liquidate on rallies due to the index’s ample long-term bearish divergence signals. Continue to take profit on any price rallies, as the divergent technical signals are very obvious and over-extended for 54 months now. Over-lapping support and resistance levels at L1 (1,664.39) and L2 (1,635.55) also indicate the “bluff” nature of this current index rise.
Due to the fine tone of the KLCI, we are recommending a “buy” on Dayang Enterprise Bhd. Dayang is poised for strong growth on the back of the anticipated earnings boost from its increased stake in Perdana Petroleum Bhd and its strong position to bag contracts from the Pan-Malaysia project.
Dayang’s reported stake in Perdana had increased to 26% in September 2012 from 19%, giving the integrated oil and gas services group added leverage to grow its bottom line moving forward.
Currently, Dayang is the single largest shareholder in Perdana and this will give Dayang access to Perdana’s fleet of 14 vessels, consisting of work barges, work boats and anchor handling tug boats which could be used for its hook-up commissioning (HUC) and topside maintenance works. The marine assets will come in handy as well should Dayang secure some of the packages under the RM10 billion Pan-Malaysia HUC contracts.
Maybank-IB currently does not have fundamental coverage on Dayang. A check on Bloomberg consensus reveals that currently all eight research houses have “buy” calls on Dayang. Dayang is currently trading at a historical price-earnings ratio (PER) of 18.4 times and a dividend yield of 2.92%.
Dayang’s share price made an obvious surge since its daily Wave 2 low of RM1.97 on Sept 12, 2012. Since that low, Dayang rose on a very firm daily Wave-3 move to its recent all-time high of RM3.48, accompanied by heavier volumes traded in March and April 2013.
Its chart has moved into daily, weekly and monthly up-trends to its recent all-time high of RM3.48. As it broke below its recent key critical resistances of RM2.98 and RM3.05, look to buy Dayang on any dips to its support areas as the moving averages depict very firm short-to-medium term up-trends for this stock.
The daily, weekly and monthly indicators (like the CCI, DMI, MACD, Oscillator and Stochastic) are firmly positive and now depict the obvious indications of Dayang’s eventual surge to higher levels. We expect Dayang to remain very firm towards its support levels of RM2.98, RM3.05 and RM3.40. It will attract minor profit taking at the resistance and all-time level of RM3.48. Its upside targets are now located at RM3.70, RM4.05 and RM4.62.
Written by Lee Cheng Hooi
This article first appeared in The Edge Financial Daily, on April 12, 2013.
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