Malaysia Stock Picks
Week 18 (30 April-4 May) Stock Picks Commentary
Hi ! Welcome and thank you for being loyal reader of Malaysia Stock Picks site. Here are the stock picks commentary for Week 18 (30 April - 4 May).
If you would like to refer to earlier posts that are related to the subject, click on the links that are embedded into the sentences.
If you would like to refer to earlier posts that are related to the subject, click on the links that are embedded into the sentences.
Stock Picks #1
AirAsia Berhad (AIRASIA)
Week high : RM 3.76 (Up 43sen - 13%)
On 2 May, Khazanah Nasional Bhd and Tune Air, the major shareholders of Malaysian Airline System Bhd (MAS) and AirAsia Bhd respectively announced that they had agreed to terminate their share swap agreement.
The reason? – On 3 May, an excerpt from an interview with Air Asia CEO Tony Fernandes by TheStar indicated that he has given up his attempt to turnaround MAS due to a few negative detractors with selfish attitude who made the most noise in MAS. He and Datuk Kamarudin Meranun have subsequently resigned as directors from MAS board
It is worthy to note that AirAsia stock price had fallen 6% since the share swap deal was agreed in August last year indicating negative market reaction towards the share swap deal.
Therefore, the market reacted positively when the share swap deal was announced terminated on 2 May. OSK Research mentioned on 3 May that investors will be pleased by the fact that Tony Fernandes could now fully focus on being group CEO of AirAsia.
AIRASIA stock rose 13% (43 sen) since 2 May to week’s highest RM 3.76 on 3 May and closed at RM 3.64 at the end of this week.
Stock Picks #2
OSK Holdings Berhad (OSK)
Week high : RM 1.74 (Up 18 sen – 11.5%)
On 27 April, OSK Holdings announced that it has obtained Ministry of Finance’s approval for the proposed merger with RHB Capital.
Earlier on the same day, OSK CEO has U Chen Hock indicated that OSK has yet to receive go-ahead from Bank Negara and may take up to 4 to 6 months to finalise the deal once approval is obtained.
Market reacted positively as the merger is seen to potentially be beneficial to OSK shareholders even though the pricing valuations and way of settlement (cash or shares) are not yet determined and agreed by both parties.
This merger is attractive and important to RHB as it would place them as the country’s largest stockbroking firm with nearly 15% market share if the merger goes through.
Do take note that on 24 June 2011, negotiations on potential merger exercise between RHB and Maybank and CIMB was called off due to wide gap in price expectations. Maybank and CIMB were not willing to pay 2.25 times book value of RHB Cap.
Do take note that on 24 June 2011, negotiations on potential merger exercise between RHB and Maybank and CIMB was called off due to wide gap in price expectations. Maybank and CIMB were not willing to pay 2.25 times book value of RHB Cap.
OSK stock rose 11.5% (18 sen) since 27 April to week’s highest RM 1.74 on 2 May and closed at RM 1.69 at the end of this week.
Stock Picks #3
Malaysian Airline System Berhad (MAS)
Week high : RM 1.34 (Up 12 sen – 9.8%)
On 2 May, Khazanah Nasional Bhd and Tune Air, the major shareholders of Malaysian Airline System Bhd (MAS) and AirAsia Bhd respectively announced that they had agreed to terminate their share swap agreement.
Instead, MAS and AirAsia has entered into a memorandum of understanding on possible set up of a Joint Venture to provide aircraft component maintenance support and repair services, improve value for money and to increase competitiveness and benefits to customers through procurement synergiesThe Reason?
MAS’s reason for the termination was due to intense pressure from its 15,000 member employees’ union that opposed the share swap deal citing concerns over potential job losses following the tie-up. The union also said that the tie-up would benefit AirAsia more than MAS.
It is also noteworthy to know that MAS stock price has dropped 29 percent as of April 30 since the share swap deal was agreed in August last year indicating negative market reaction towards the share swap deal.
An interview with AirAsia CEO Tony Fernandes on 5 May saw him defending allegations of him benefiting AirAsia during his stint at MAS, includes killing off Firefly, having MAS to sponsor his QPR football team and unfair advantageous competitive position from having seen inner workings of MAS.
Tan Sri Tony Fernandes and Datuk Kamarudin Meranun have subsequently resigned as directors from MAS board on 2 May.
Therefore, the market reacted positively when the share swap deal was announced terminated on 2 May. MAS will no longer be restricted to focusing on full-service operations after this deal, which it had earlier agreed to cede the low-cost market to AirAsia as part of the share swap.
Even so, analysts are cautious over MAS fundamentals and financial performance. MAS reported a massive RM 2.6 billion net loss for its previous financial year 2011, Hwang DBS Research believes MAS net gearing could surpass its current 4.4 times as MAS seeks funding for scheduled delivery of RM3.5bil aircraft by its 2013 financial year.
MAS stock rose 11.5% (18 sen) since 2 May to week’s highest RM 1.34 on 3 May and closed at RM 1.24 at the end of this week.
Stock Picks #4
Tasek Corporation Berhad (TASEK)
Week high : RM 8.98 (Up 31 sen – 3.6%)
On 1 May, Tasek Corp’s CEO Thing Sii Tien @ Yao Sik Tien mentioned that he expects decline in cement demand from private sector jobs this year to be compensated by Government mega projects.
Some of the more prominent Government mega projects include the RM30 billion Mass Rapid Transit (MRT), Iskandar development region in Johor, the Northern Corridor Economic Region, and also the East Coast Economic Region.
Market reacted positively on potential earnings boost from Government mega project to Tasek Corp, the fourth largest cement company in Malaysia with a 10% market share.
TASEK stock rose 3.6% (31 sen) since 1 May to week’s highest RM 8.98 on 4 May and closed at RM 8.90 at the end of this week.
Stock Picks #5
Top Glove Corporation Berhad (TOPGLOV)
Week Low: RM 4.48 (Down 21 sen – 4.5%)
"To recap last week, Maybank Research in its analyst report on 24 April upgraded TopGlove Corp from "SELL" to "BUY" raising its target price to RM 5.40 stating that TopGlove sales volume picked up in its latest quarter to almost back to its H1N1 peak as well as its key production cost (latex cost) has begun its seasonal downtrend.
Market took this news as positive as higher sales and lower production costs are expected to be beneficial to TopGlove's net profits in the coming months. TOPGLOV stock rose 5.6% since 24 April to week’s highest RM 4.72 on 25 April."
Subsequently (this week), on 1 May, the Malaysian Government announced minimum wage to set at RM 900 and to be effective 6 months from date the Minimum Wage Order is gazetted.
Hwang DBS Vickers Research stated that Top Glove will be most affected by minimum wage policy and its earnings and margins are expected to be dampened in the immediate term.
HwangDBS said its sensitivity analysis showed earnings could fall by 5%-19%, if minimum wage of RM900 per month is implemented assuming no change in average selling prices. Nonetheless, HwangDBS expects additional staff costs to be passed to customers over time.
Market reacted negatively on potentially lower profit margins from the minimum wage policy even though it will only be effective only 6 months from the date the Minimum Wage Order is gazetted.
Take note that the government has also provided some flexibility whereby some allowances or fixed cash payments are allowed to be absorbed in the calculation for minimum wage. Furthermore, if Top Glove is able to pass through the staff costs increase by raising average selling prices, then the impact may be reduced.
TOPGLOV stock dropped 4.5% (21 sen) since 2 May to week’s lowest RM 4.48 on 3 May and closed at RM 4.55 for the week.
On Other Stocks:-
Can-One Berhad - On 30 April, analyst S.N. Lock performed Technical Analysis on Can-One Berhad stock price chart and indicated that Can-One Berhad is poised to move towards resistance zone of RM 2.25- RM 2.45 (upside of 3%-12%).
Contrary to the technical analysis, CANONE stock price had moved downwards plunging to a low of RM 2.07 or -5.5% on 3 May and closed at RM 2.10 for the week.
Click here for all latest posts on Technical Analysis
Click here for all latest posts on Technical Analysis
Kinsteel Berhad – On 1 May, the Malaysian Rating Corporation (MARC) had lowered its ratings on Kinsteel Bhd's RM200mil debt notes while the outlook for the ratings was negative.
The ratings agency said the ratings involved the RM100mil Murabahah commercial papers/medium term notes programme (CP/MTN) and RM100mil Murabahah MTN programme to MARC-2ID/A-ID and A-ID from MARC-2ID/AID and AID respectively
Market reacted negatively which saw KINSTEL stock price dropped 4.4% in a day on 2 May to the week’s lowest 43 sen. KINSTEL closed at 44 sen for the week.
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