Najib's Counters

To those who're not aware of how've the market been doing, below I attach a news from TheEdgeDaily, for reading pleasure of course. For the past 2 weeks or so, Dow Jones surged from 6600+ to 8000+ whereas mini bull ran riot in KLSE, jacking it from 840+ to 940+. All red hot counters such as KNM, MRCB, LIONDIV, LIONIND, SIME... either gained >10-20%, or testing new resistances/breakouts. Should've seen it coming right? With the Najib thingy going on, the elections shows playing around, the UMNO-related counters MRCB, KUB... all jumping so vigorously, the Easter long holiday, some surprisingly good financial reports, the Japanese boost thingy... you should've seen it coming. Bear trap??! Argggh...lol

------------------------------------------------------------------------------------------------TheEdgeDaily: Najib Razak will win the UMNO Presidency uncontested and become Malaysia’s 6th Prime Minister. · With the changing of guards in Putrajaya, we highlight Najib’s six confidants and four brothers. · Politically-linked stocks like MRCB and IJM will benefit from the government’s stimulus packages. · We remain concerned on the banking sector in a cyclical downturn but Bumi-Commerce is well-run group with Nazir Razak at its helm. · Small cap politically-linked stocks, including loss making ones, have been outperforming the market. UMNO General Assembly 24-28 March

In a CLSA report issued last week, the brokerage and investment group try to ascertain if traders can profit from the changing of guard in Putrajaya, and if longer term investors should start to pay more attention to Malaysia's structural growth story.

Najib Razak won the post of UMNO President in the UMNO General Assembly uncontested. Seeing as how UMNO is the largest member in the ruling coalition Barisan Nasional, the UMNO President is traditionally made the nation’s Prime Minister.

Najib’s six confidants

Very soon after Najib was appointed Finance Minister in September, he personally picked six individuals for a corporate roundtable. It is widely believe that these six individuals with corporate and investment background, have at one point or other given significant input to Najib on issues ranging from the economy, capital markets and business in general. It is also interesting to note that out of the six, three are currently board members at Khazanah. Thus although it is the outgoing Badawi administration that empowered Khazanah as the government’s strategic investment vehicle, we believe Khazanah will remain very relevant in the Najib administration.

Najib’s four brothers

Najib is the eldest of the five siblings in the Razak family and he was 17 years old when his father Abdul Razak was Malaysia’s 2nd Prime Minister from 1970-1976. Najib is also a nephew of Malaysia’s 3rd Prime Minister Hussien Onn. Out of his four brothers, Nazir Razak CEO of Bumi-Commerce is the most well-known one and has also been very vocal in the press, regularly calling for a revamp of the archaic National Economic Policy (NEP). Thus it is no surprise that Nazir has Najib.s ear as the latter has recently been on national TV promising to make changes to the implementation of NEP.

We continue to believe that the Najib administration has plans for further liberalisation in the services sector. In Najib’s mini-budget speech on March 10, he said that the Foreign Investment Committee (FIC) will be adopting a more liberal approach to nurture a more investor-friendly environment, i.e. to attract more investments including foreign direct investments. Therefore the government is formulating new guidelines to reflect this new role for FIC. We are guessing that they may further relax the NEP in the services sector. Many have argued that the NEP has been a disadvantage in attracting FDIs/portfolio investments into Malaysia. Thus further dismantling of this arcade policy could put Malaysia back on the path to structural growth over the longer term, and will correspondingly boost the local equity market in the long run.

Stocks to keep an eye on

We have done a screen of stocks which we believe traders and investors should keep an eye on as the guards change in Putrajaya. We continue to like MRCB (MRC MK-RM0.87-BUY) and IJM (IJM MK-RM4.02-BUY) as they stand to benefit from the government’s fiscal spending ahead. Furthermore, CEO of MRCB Shahril Ridzuan was hand-picked to be one of the pioneering members under the government’s GLC reform initiatives. As for IJM, ultimate parent is MMC Corp (MMC MK-RM1.41-N-R), whose major shareholder is Syed Mokthar Albukhary, who many believe will remain in the inner circle. Both MRCB and IJM have Employees Provident Fund (EPF) as their single largest shareholder.

We remained cautious on the banking sector given the cyclical downturn ahead, but Bumi-Commerce (BCHB MK-RM6.55-SELL) will continue to draw interest from long term investors. Despite concerns on withdrawal of Middle Eastern investments in Iskandar Malaysia, another favourite amongst traders is UEM Land (ULHB MKRM0.75- N-R).

Finally a few of observations from Figure 3. Firstly, three groups are prominently featured in the table, i.e. Sapura, Hong Leong and MMC. Secondly, oil & gas companies namely Sapura Crest and Wah Seong with cheap PE multiples of 7-8x have been outperforming the market over the last three months. Thirdly, TH Group, George Kent, Johan and Paramount are loss making but have outperformed the market.

The faces to remember