Analyst call May 2
UPDATED @ 11:51:14 AM 02-05-2012
KUALA LUMPUR, May 2 — This is a selection of morning calls by local research houses for the day.
When our Malaysian bourse was on holiday yesterday, the only two regional peers that were opened for trading saw mixed performances — Indonesia (+0.4 per cent) rose but Japan (-1.8 per cent) was down. Over on Wall Street, key US equity indices ended little changed (between -0.6 per cent and +0.4 per cent) since Monday night.
On the chart, the FBM KLCI may move sideways with a slight positive bias today after losing much ground recently. Nevertheless, the benchmark index is not expected to challenge the immediate resistance threshold of 1,580 anytime soon.
In terms of individual share price actions, there could be interest in counters like: (a) glove manufacturers Top Glove, Kossan Rubber and Supermax as their operating costs would likely be hit after the government set the minimum wage at RM900 per month in Peninsular Malaysia and RM800 per month in East Malaysia; and (b) KNM Group, which has proposed to undertake a fund-raising exercise involving a rights issue of RM200m.
Rubber Gloves — Hold
The minimum wage for the private sector was set at RM900 per month for employees in the peninsula, and RM800 for workers in Sarawak, Sabah and the Federal Territory of Labuan. There will be a six-month grace period for implementation from the date the Minimum Wage Order is gazetted. 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.
In our previous report, we highlighted the impact of minimum wages on the glove makers. Our sensitivity analysis showed staff costs would increase by 17-22 per cent while earnings could fall by 5-19 per cent, if minimum wage of RM900 per month is implemented assuming no change in ASPs.
Hartalega will be the least affected, Top Glove most affected. Based on our estimates, Hartalega’s salary costs could rise by RM10m a year (+17 per cent) and this would lower FY13F net profit by 5 per cent. For Top Glove, staff costs could rise as much as RM39m (+22 per cent), denting FY13F earnings by 19 per cent.
We estimate Kossan’s annual salary costs to increase by RM18m (+17 per cent) and net profit to fall by 13 per cent. However, if fixed allowances or cash payments are allowed in the calculation for minimum wages, the impact will be softened.
We maintain Hold for Top Glove (TP: RM4.80), Hartalega (TP: RM7.70) and Kossan (TP: RM3.30). We expect the additional staff costs to be passed to customers over time, but in the immediate term, we expect earnings and margins to be dampened.
The negative bias seen last week remains unconfirmed as buyers appeared just above the support level. The black candle that formed last Friday failed to induce further selling and the index formed a “Hammer” instead, possibly indicating the return of buyers above the support level of 1,560 level — round about the low of 12 March and 24 April’s “Hammer”. This could mark a bottom as the daily RSI is oversold, matching the low of Nov 2011.
Note that the longer-term trend stays up as the index is well above the rising 200-day MAV line, which is also boosted by the longer-term positive indication of a “Golden Cross” back in February.
The “Hammer” alone does not mark the end of the correction, which was triggered by the false breakout above the 1,600 psychological level on 3 April. Buying will only be confirmed if the index closes above the 1,580 level, as the index will cross back above the 50-day MAV line and also above the prior 5-day high of 1,578.50 pts.
Resistance levels are expected at the broken supports of 1,588.50 and 1,594 pts. A close above the psychological 1,600 pts is still required to completely erase the negative bias since 3 April. Otherwise, the correction is still ongoing although confirmation in the form of a close below 1,560 pts is still required.
Should the down move be confirmed, strong support is expected at 1,550 pts, which will retrace 50 per cent of the Feb-April rally, followed by the 62 per cent retracement level of 1,540 pts.
The commodity’s consolidation continues as it traded within the range of the past two weeks. However, the upside bias seen late last week was significantly reduced as the commodity formed a black candle on Monday. In fact, it is the first time during this sideways consolidation that the price closed below a prior 2-day low.
Coupled with another false breakout of the psychological RM3,500, this may prove to be a potent negative signal.
Nonetheless, selling still requires confirmation in the form of a close below the 16 April-low of RM3,458. This may erase the positive bias from the support candles of 19, 20 and 25 April. Such a violation will extend the correction that started on 12 April and support is expected at RM3,400 — a 38 per cent retracement of the Feb-April rally.
Given the trading range, a failure to close below RM3,458 will likely see the return of buying. A convincing close above RM3,500 is required to confirm buying and resistance may come at the low of 3-5 April at RM3,532, the low of 6-10 April at RM3,562 and thereafter, the round figure of RM3,600.
A close above RM3,562 will significantly increase the possibility of an upward continuation, as the rebound would have regained more than 62 per cent of the recent decline.
Note that the longer-term trend is up, judging from the series of higher lows – the latest at RM3,334 and RM3,439, while the daily RSI is the most oversold in two months.
Oversea Enterprise Bhd
By analysing the weekly chart, we could get a clearer picture of Oversea’s current technical landscape. Thus far, the stock has been consolidating the strong rebound that occurred on 12 Feb 2012. Although it would need to crack above the RM0.165 level to officially end the consolidation phase, we sense the emergence of a short-term trading opportunity at this juncture.
We view a violation of the 100-week MAV line as an early indication of an impending breakout from the consolidation phase. Hence, we advise traders to accumulate Oversea shares should this moving average line be violated. We are eyeing the RM0.175 and RM0.20 as the upside targets.
Traders should consider cutting loss should the share price retrace back below the moving average line.
Oversea recorded a strong rebound on 12 Feb 2012 and since then, the stock has been consolidating its huge gains. A consolidation phase that ranges from the RM0.115 level to the RM0.165 level has been detected. In addition, the stock is also now consolidating between the 50-week MAV line and 100-week MAV line, which is within the identified consolidation range.
A breakout at the 100-week MAV line may be an early indication of an impending breakout from the RM0.115-RM0.165 consolidation range. Furthermore, the stock has been trying hard to push itself above the 100-week MAV line on Monday, as evidenced by the rising volume on that day. Hence, this latest development represents an obvious attempt by the stock to crack above the moving average line.
We advise traders to accumulate Oversea shares should this line be violated. The 100-week MAV line now lies at the RM0.145 level. We are eyeing the RM0.175 level as the first upside target. The next upside target is pegged at the RM0.20 psychological mark.
Traders should cut loss should the share price fall back below the 100-week MAV line. Resistance lies at the 100-week MAV line, RM0.165 level and RM0.175 level. To the downside, strong support can be found at the 50-week MAV line, which is now situated at the RM0.125 level, followed by the RM0.115 level.
JCY has to break above the resistance level to keep the rally intact. The stock has moved favourably after it was highlighted about two weeks ago. It broke above the RM1.40 level and as expected, it met with resistance at RM1.60. This is seen from the latest four “Dojis” that formed a tight trading range.
Buyers appear to have the upper hand as the “Lower Shadows” have superseded the “Upper Shadows”. Nonetheless, a prudent trade would wait until a breakout occurs before acting. A close above RM1.60 should see the stock trading higher and purchases can be made if this happens with a stop loss on close below the 4-day low of RM1.53.
The price target is RM1.75, a Fibonacci extension of the Oct-Feb rally, and a strong move could see the stock at RM1.90, also another Fibonacci extension of the same rally.
A close below RM1.53 could see a correction to the March-April rally setting in. Support is expected at RM1.40 and RM1.28, Fibonacci retracements of the rally and also important past support levels. Strong support lies at RM1.07, a violation of which may signal the end of the rally.
GPRO’s share price may trade higher after it breaks above resistance level. The stock has been in a sideways consolidation following the sharp drop in early Nov 2011. Interest returned to the stock in February, but the price has remained between the RM0.08 and RM0.11 levels.
Buyers appear to have the upper hand now as the trading range has broken to the upside. The breakout volume was not particularly high but another close above the 3-month high of RM0.11 indicates that accumulation was indeed taking place on relatively high volume last week.
Purchases can be made on close above RM0.11 with a close below RM0.08 as a stop loss. An aggressive trade may choose a close below the psychological
RM0.10 as a stop loss instead.
The price target is RM0.175, which will regain 50 per cent of Nov 2011 decline, provided that the stock closes above the February-intraday high of RM0.15, also a Fibonacci level of the Nov 2011 decline.
The trade may not work should the stock close below RM0.10, with a violation of RM0.08 as the confirmation. If this happens, look for the stock to trade lower.
* These recommendations are solely the opinion of the respective research firms and not endorsed by The Malaysian Insider. The Malaysian Insider shall not be liable for any loss arising from any investment based on any recommendation, forecast or other information contained here.