Market Focus
Market Strategy
Malaysia Equity Research PP 12944/04/2012(029357) 19 January 2012
KLCI: 1,517.38
Way of the Dragon
ANALYST
• Ride the mighty Dragon as the mythical creature Goh Yin Foo, CFA, CMT +603 2711 0950
yinfoo@hwangdbsvickers.com.my
navigates the sky to seek new paths
• The Year of the Dragon could spew good luck for 8 prosperous stocks that could soar with the Dragon
consumer, property, construction and petroleum- Current price Target price Total potential
related sectors returns*
• The FBM KLCI might first pull back to a low of 1,400 RM RM (%)
Maybank 8.29 10.60 32.8
before recovering to our year-end target of 1,590 Petronas Gas 15.38 16.90 13.2
Bumi Armada 4.15 5.00 20.5
Meet the Dragon. As the Dragon flies in and the Rabbit Gamuda 3.57 4.80 37.0
hops out of the lunar calendar, we gaze skywards for Parkson Holdings 5.60 6.55 20.3
celestial inspirations on what portends in the New Year Berjaya Sports Toto 4.30 4.70 15.0
(which runs from 23 Jan 2012 to 9 Feb 2013). Astrologers KLCC Property 3.31 3.70 16.9
say the global economy will likely be suppressed, but there Axis REIT 2.70 2.75 9.6
may be signs of recovery later in the year. This suggests the
* - Equals share price upside + FY12 dividend yield projections
situation could worsen before it gets better. Source: DBS Vickers
Chasing the Dragon. Don’t expect the Dragon to breathe
fire into the stock market this year. In the absence of the fire
element, equities could cool down. And given the presence
of two clashing elements – water on top of earth – the
sense of imbalance may cause intensity and volatility in the
stock market as we enter the Year of the Dragon.
This does not mean there is no money to be made. To
thrive, clutch the mighty Dragon spirit. In chasing after the
auspicious symbol linked to this legendary creature, investors
should be imaginative, fearless and take calculated risks. But
as the Dragon is a mythical larger-than-life animal, be
mindful of events that may unfold quickly and furiously in a
transitory manner.
Market headwinds could drag on. We remain defensive on
Malaysian equities, expecting the benchmark FBM KLCI to
slide to a trough of 1,400 before staging a subsequent
recovery towards our year-end target of 1,590. The Year of
the Dragon could shine on industries associated with the
wood and earth elements, and favourable sectors include
consumer, property, construction and petroleum-related.
Combining their luck factors with positive fundamentals, we
have eight lucky picks on our prosperity stock list (see side
table).
Read on to find out more about our insights in the Year of
the Dragon, captured in Question & Answer style.
HWANGDBS
Refer to important disclosures at the end of this report
Market Focus
Way of the Dragon
Question: What is the reason for this report? Question: But were the predictions accurate last year?
DBS Vickers: This is a thematic report that writes about the DBS Vickers: To be honest, it was mixed. We wrote that the
significance and expectations of the Year of the Dragon, stock market rally would extend into 2011, but our local
which will reign from 23 Jan 2012 through 9 Feb 2013. bourse could not sustain its momentum despite registering
new highs. Yet, the advice to be more vigilant in the later
Question: Can you briefly explain the Chinese animal signs stages due to possible cooling effects arising from the water
and basics of Chinese geomancy? element with the arrival of the Year of the Dragon seemed to
offer a sense of truth.
DBS Vickers: According to the Chinese almanac, the lunar
calendar runs on a 60-year cycle, rotating among 12 animal On hindsight, investors who had been emulating the traits of
zodiacs and five elements. Chinese astrologers believe there the Rabbit would have benefited. Calls to use the long bunny
are five elements that represent the basic components of ears to filter out market noises, avoid overconfidence, and
everything in the universe – fire, earth, metal, water and show resilience, were timely.
wood, in this particular order – with their inter-relationships
governed by the cycle of birth and destruction. A word of caution – past track record is not a guarantee or
reflection of future performance.
This coming Chinese New Year, we will be celebrating the
Year of the Water Dragon, which takes over from the Metal Question: Why should we then read this report?
Rabbit.
DBS Vickers: This report is for fun, if you will. The content is
Question: How do you know about celestial predictions when merely for amusement to take your minds off the shaky global
you are supposed to be a financial analyst? Who are your economic outlook, and is never meant to be a substitute for
sources? our fundamental approach.
DBS Vickers: We do not pretend to know everything, certainly So, be open-minded and stay positive. You can choose to
not the art of fortune-telling. We trawl through the cyber believe or ignore these general forecasts, which are made
space and borrow the crystal balls of experts who use a without considering specific elements. Whatever the omens,
combination of astrology, horoscope and metaphysics remember, you are the master of your own destiny. So, let’s
principles. Based on consensus opinion, we then link their use our common sense to seek the truth.
interpretations to our stock market knowledge, with a dose of
logic of course. Question: Which elements will dominate in the Year of the
Dragon?
Question: Are the astrologers’ forecasts reliable?
DBS Vickers: We will see water sitting on top of earth. This
DBS Vickers: Call them what you want – geomancers, represents a destructive cycle as earth is the destroyer of
soothsayers, astrologers, fortune tellers, feng shui water according to the cycle of birth and destruction. Due to
practitioners – these self-styled masters earn a living by this conflicting relationship, there could be upheavals arising
making predictions. Just like us, who advise clients by from a sense of imbalance. The combination of the water and
recommending what stocks to buy or sell (and hope we will earth elements may also result in murky waters, which could
be rewarded with commissions in return). obscure the outlook. In addition, the dragon is the only animal
in the Chinese zodiac that is mythical, which implies events
Since forecasting is more an art rather than science – based may unfold in an illusory manner. Yet, the later part of the
on different methods and subjective interpretations – there is year promises stability and recovery.
no guarantee of accuracy. So, please do not hold us liable for
their forward-looking opinions.
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Market Focus
Way of the Dragon
Question: Will the world end on 21 December? To prosper, be adaptable like the Dragon, which can live in
water, on land and air. Being imaginative and self-driven are
DBS Vickers: As an investor, you should worry more about essential investment traits, too, as the divine beast is always
whether you will make money this year. able to see and chart new paths.
Contrary to popular belief, the Mayan doomsday prophecy did Question: Which sectors will see good fortunes?
not predict that the world would end on 21 Dec 2012.
Instead, it merely said the date marks the end of a great cycle DBS Vickers: Industries associated with the wood and earth
and the beginning of another in their calendar. 2012 is also a elements. This is because according to the cycle of birth and
leap year, which signifies that we will be able to jump over destruction, wood conquers earth while earth conquers water
obstacles ahead. (and earth and water are the two dominant elements in the
Year of the Dragon).
And just to be clear, we have plans to be around this time
next year to write on the Year of the Snake. They include consumer products, food & beverage and media
(wood element), and property, construction, petroleum-
Question: What happened in previous Dragon years? related and mining (earth element).
DBS Vickers: An analysis of historical stock market Meanwhile, industries that fall under the fire element (e.g.
performance was inconclusive. In Malaysia, the benchmark airlines) and water element (e.g. shipping) are expected to
KLCI saw an obvious downtrend in 2000 (-26%; Appendix 1), face turbulent times.
but chalked up gains in 1988 (+46%; Appendix 2). If we go
back to the last Year of the Water Dragon in 1952, the DJIA Question: Where should investors put their money? And why?
on Wall Street pulled back first (-7%) before rebounding
subsequently to close the year up a minute 4% (Appendix 3). DBS Vickers: In defensive stocks, of course. For prudence sake,
that’s why. If the worst is yet to come, then it only makes
Question: When will the bulls return? What does the Year of sense to adopt a capital preservation investment strategy. To
the Dragon hold for our stock market? seek shelter in Malaysia, consider the following eight names.
They are either in auspicious sectors or offer attractive
DBS Vickers: We wish we knew the exact timing. According to dividend returns: Berjaya Sports Toto (Buy TP RM4.70),
the soothsayers, the bulls may not make their presence felt Parkson Holdings (Buy TP RM6.55), KLCC Property (Buy TP
this lunar year. This is because of the missing fire element, RM3.70), Axis REIT (Buy TP RM2.75), Gamuda (Buy TP
which represents the driving force behind the stock market. RM4.80), Petronas Gas (Buy TP RM16.90), Bumi Armada (Buy
You may argue that the mythical creature could breathe out TP RM5.00) and Maybank (Buy TP RM10.60). See Figure 1 for
fire, but let’s not forget the dominance of the water element their valuation snapshot.
in the coming Year of the Dragon that can calm its fire. Also,
because the spirit of the Dragon tends to make everything
seem larger-than-life, the financial markets could see more
volatility this year.
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Market Focus
Way of the Dragon
Figure 1: Our prosperity list of stock picks at a glance
Stock name Rating Market cap Share price (RM) P/E (x) P/BV (x) Dividend yield (%)
(RMm) 17-Jan Target FY11F FY12F FY11F FY12F FY11F FY12F
Maybank Buy 63,331 8.29 10.60 12.7x 12.1x 1.9x 1.8x 4.7% 4.9%
Petronas Gas Buy 30,433 15.38 16.90 20.3x 18.3x 3.5x 3.3x 3.3% 3.3%
Bumi Armada Buy 12,153 4.15 5.00 32.6x 20.7x 3.4x 2.9x 0.0% 0.0%
Gamuda Buy 7,384 3.57 4.80 15.3x 13.6x 1.8x 1.7x 2.5% 2.5%
Parkson Holdings Buy 6,125 5.60 6.55 15.3x 12.2x 2.6x 2.3x 2.6% 3.3%
Berjaya Sports Toto Buy 5,809 4.30 4.70 14.6x 13.1x 10.4x 8.6x 5.1% 5.7%
KLCC Property Buy 3,092 3.31 3.70 10.7x 8.6x 0.7x 0.7x 4.1% 5.1%
Axis REIT Buy 1,225 2.70 2.75 15.5x 14.5x 1.3x 1.3x 6.7% 7.7%
Source: Bloomberg, DBS Vickers
Appendix 1: The FBM KLCI performance in the Year of the Metal Dragon in 2000
Sector profiles
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Market Focus
Way of the Dragon
Appendix 2: The FBM KLCI performance in the Year of the Earth Dragon in 1988
Appendix 3: The DJIA performance in the Year of the Water Dragon in 1952
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Market Focus
Way of the Dragon
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