Looking back on 2013: Top stocks and top sectors

By Chan Quan Min

Fund managers and research houses at the top of their game reflect on the year that has been, singling out top stocks and sectors that have outperformed the market. It has been a year of modest gains overall, but as always, a year of selective gains.

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Broadly speaking, the local stock market saw modest gains this year, much of it during the relief rally following the thirteenth general elections in May 2013. Since the start of the year, the FMB KLCI benchmark index has expanded approximately 8%.

Drilling down to individual stocks, there were some clear market outperformers this year, with most of them coming from the oil & gas, technology, property and consumer sectors.

To get a clearer picture of the outstanding performers on Bursa Malaysia this year, KiniBiz spoke to three fund managers and two prominent research analysts for their take on the market for the year in review.

Today’s contributors share their top performing stocks and sectors for 2013 and, along the way, provide some useful insights.

Tan Chong Koay, Pheim Asset Management Sdn Bhd founder and CEO

KiniBiz spoke to Tan, a fund management industry veteran, well known for his impeccable market timing.

Tan is a significant shareholder in both Malaysian and Singaporean units of Phiem Asset Management, founded close to two decades ago. He shared openly his experiences for the year in review and his investment philosophy:

The negative sentiments before the general election early in the year provided a very good opportunity for us to accumulate some undervalued companies.

When the market learnt of the US Fed’s intention to taper its QE (quantitative easing) programme we saw some foreign funds pulling out of the Asean region. When further clarity emerged and that tapering was to be later rather than sooner funds came back.  We managed to get some reasonably priced stocks during the selldown. Consequently, the funds enjoyed a bit of performance from this volatility.

For 2013 some of the stocks that have performed well include Inari Amertron, Vitrox Corporation and Globetronics Technology and those in the oil and gas sectors we have Dayang Enterprise Holdings, Uzma and Deleum.  An outstanding property stock has been Matrix Concepts Holdings.

Consumer stocks did very well too and these included Kian Joo Can Factory, Can-One, Daibochi Plastic & Packaging Industry and Supermax Corporation. A heavy weight, Tenaga Nasional, turned out to be an excellent performer towards the end of the year. We see plantations as a more promising sector into 2014.

Perhaps I would like a share a few words about our investment philosophy. We adopt a predominantly value approach to investing. Basically, we do our own research as we seek out stocks that are cheap relative to their underlying values, in the expectation that the share price of the stock will rise at some point in time to more accurately reflect its true worth. Above all, we have a good team sharing a common culture and practising an investment philosophy developed over the past 20 years.

We do not believe in being fully invested at all times. We rather seek to trim our equity exposure when we believe the market is near its peak in order to preserve capital. Conversely, we seek to increase equity exposure when we believe the market is near its bottom.

Gerald Ambrose Johari Ali Abdullah, Aberdeen Asset Management Sdn Bhd managing director and CEO

A former submarine officer in the Royal Navy, Ambrose was roped in to lead the Aberdeen group’s Malaysian unit in 2005 when the UK-based investment group was selected to set up the country’s first foreign-owned fund management firm.

The Aberdeen group has over RM15 billion invested in the local stock exchange. KiniBiz got Ambrose to list the top performers in his portfolio this year:

Shangri-La Hotels (Malaysia) was one of our better performers, led by privatisation talk by major shareholder Robert Kuok after he bought a large block from Standard Chartered Bank earlier this year. In addition, Shangri-La Hotels (Malaysia) has enjoyed brisk business at all its hotels in Kuala Lumpur, Penang, Kota Kinabalu and its associate in Yangon, Myanmar started turning in profits.

Pos Malaysia also had an outstanding year. Its new major shareholder, DRB Hicom, started to execute its transformation plan and this has led to greater profitability at its courier division and reduced costs as a result of economies in procurement.

Our local insurers Allianz Malaysia & LPI Capital also fared well, as did Aeon Credit Service (M).

What do all these counters have in common? They’re all exposed to a vibrant domestic economy, which has made Malaysia less dependent on changes in external demand.

Our composite Malaysian equity portfolio has risen 14.1% up to end-October 2013 versus the index’s (FBM KLCI) rise of 11.4%.

Choo Swee Kee, TA Investment Management chief investment officer

Fund manager TA Investment, a unit of homegrown TA Enterprise, has total assets of RM727 million under management.

Choo, the chief investment officer, has over 17 years of investment managerial experience under his belt in overseeing both equity and balanced funds. He shared with KiniBiz his take on the market this year:

Tenaga Nasional up 60% year-to-date has been a consistent performer.  Its business was relatively secured and it only needed to control costs and improve efficiency. The biggest catalyst for Tenaga was the revision in electricity tariff, which was announced on Dec 2, 2013.

Hibiscus Petroleum up 80% this year is the first SPAC (special purpose acquisition company) to be listed on the Bursa Malaysia. Since listing, it has met its objective of buying into the oil & gas business through the acquisition of Lime Petroleum Plc.  The key to buying Hibiscus shares is the skills and reputation of the core management to create value with your money.  We would like to note that Hibiscus is a high beta stock and oil exploration is a risky business.

The top sector for 2013 is clearly the oil & gas sector.  Throughout the year, the sector was a hive of activity with numerous contract announcements from Petronas.  Total value of contracts announced was more than RM25 billion. Stocks in the sector that performed well include Sumatec Resources (YTD +232%), Uzma (YTD +220%), Dayang Enterprise Holdings (YTD 140%), Deleum (YTD 125%) and Alam Maritim Resources (YTD +123%).

Lee Chung Cheng, JF Apex Securities head of research

An often-quoted market analyst, Lee leads the research team at JF Apex Securities. The boutique brokerage firm is known for offering personalised services tailored to retail clients.

In his analysis, Lee tied the performance of his list of top gainers, most of them small to mid cap stocks on Bursa Malaysia, to specific news events:

Barakah Offshore – RTO (reverse takeover) of Vastalux Energy, lift from PN17 (practise note 17/2005) and potential to get Petronas contracts.

Focal Aims Holdings – Takeover offer by Eco World Development Sdn Bhd, and subsequently asset injection.

Hong Leong Capital – Takeover offer by HLFG (Hong Leong Financial Group).

Datasonic Group – Strong earnings growth trajectory expected in FY2013 – FY2015, share split proposal.

Inari Amertron – Strong earnings growth after acquisition of Amertron Inc (Global) Ltd, an optoelectronics manufacturer.

Narra Industries – Buying over Hong Leong Industries

Sumatec Resources – Possible turnaround next year after Halim Saad became major shareholder and company venturing into Kazakhstan oil & gas.

My EG Services – Share price surged significantly after Barisan Nasional achieved victory is general election 2013, GST (goods and services tax) play.

Uzma – Positive news flow in oil & gas sector.

Mulpha Land – Restructuring exercise whereby parent Mulpha International injected strategic landbank in Petaling Jaya into the company.

GHL Systems – Takeover of Australian e-Pay and GST play.

Tiong Nam Logistics Holdings – Inspired by rights issue and share split.

Puncak Niaga Holdings – Venturing into oil & gas, potential resolution of Selangor water impasse and election play.

Lee named three sectors as the top performing this year:

Oil & gas – positive newsflow of award of Petronas contracts; property – inspired by robust property sales and Iskandar Malaysia play; construction & technology – high beta play.

Vincent Khoo, UOB Kay Hian Securities head of research

UOB Kay Hian is a regional brokerage and corporate finance services firm headquartered in Singapore. Vincent Khoo leads the research team in the company’s Malaysian unit. In his year-end report he found it apt to describe 2013 as a year of two halves:

Caution prevailed throughout most of 1H13 until the GE13 polling day in May, causing the FBM KLCI to underperform the buoyant global bourses. Nevertheless, the FBM KLCI recovered steadily after falling 4.5% to hit a trough of 1,613.33 in February.

Steady foreign portfolio inflows had been a key support to the market as foreign investors bet on Malaysian equities eventually catching up with their regional peers, while local institutional funds and retailers were net sellers.

Sectorally, the early market outperformers were the construction and property sectors, with rubber glove manufacturers and the oil & gas drilling and production segment joining the fray in 2Q13. Automobile and consumer companies – most prominently those in the brewery segment – initially outperformed the market, but lost steam in 2H13.

Next, KiniBiz focuses on the property industry before again returning to the stock market on the following day with a forward looking view.

Yesterday: Stock market outlook 2014

Tomorrow: Focus on property