Oil and gas stocks are expected to steal the limelight on the Malaysian stock exchange this week, says a head of research THE local stock exchange bounced back last week after commodity prices recovered from the previous week's sharp selloff, and banks rose after raising their base lending rates following Bank Negara Mallaysia's decision to raise the Overnight Policy Rate by 25 basis points to 3 per cent- Oil & gas-related stocks were the clear winners last week, boosted by news that Petronas will invest RM60 billion in a refinery and petrochemical complex in Pengerang, Johor, which borders Singapore-Week-on-week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) recouped 25-24 points, or 1-67 per cent, to settle at 1,540-74, with gains in Axiata (+20 sen), Hong Leong Bank (+RM2-00), Sime Darby (+27 sen), Maybank (+22 sen) and Genting Bhd (+28 sen) contributing 71 per cent of the index's rise- Average daily traded volume and value shrank to 941-8 million shares and RM1-38 billion respectively, compared with 981 million shares and RM1-36 billion in the previous week-Petronas' announcement that it is undertaking a feasibility study for the development of a refinery and petrochemicals integrated development (Rapid) in Pengerang, Johor, underscores the importance given to the oil and gas sector to drive domestic expansion- The fact that a new liquefied natural gas receiving and regasification terminal, akin to the terminal in Malacca that will be completed in June next year, is also being considered in Pengerang signifies the importance given to resolve the shortage of gas faced by many industries locally- A decision on developing this LNG facility in Johor will be made by the end of this year, which coincides with the planned completion date for the feasibility study on Rapid- An investment decision on the project will be made by end-2012- It strives to complete the refinery with processing capacity of 300,000 barrels per day; a naphtha cracker with production capacity of 3 million tonnes of ethylene, propylene, C4 and C5 olefins; and petrochemical and polymer complex by end-2016- Foreign partners will be engaged on equity partnership to bear this RM60 billion investment- As the total estimated investment with the inclusion of ancillary facilities and LNG terminal is expected to exceed RM100 billion during the period, many domestic oil and gas players along the supply chain are expected to benefit in various stages of the project- As such, prospects for oil & gas counters such as Dialog, Kencana, KNM, Pantech, Perisai, Petra Energy, Petra Perdana, Petronas Gas, and SapuraCrest Petroleum continue to be attractive at current levels given that they are potential beneficiaries of projects to be dished out by Petronas-Construction players, mainly private enterprises and smaller listed players, could benefit from the construction and infrastructure-related works in the area as well- It includes Bina Puri, which has a strong shareholder with the right connection in Johor- Not to forget, property stocks which have strong concentration in the state like KSL and Crescendo may attract some interest as well- Pantech, being the smallest player among the abovementioned O&G stocks in terms of market capitalisation and little followed by the investment fraternity, has prepared to seize the opportunities arising from bustling O&G activities in the southern state- The company commissioned its stainless steel pipe manufacturing facility in Pasir Gudang recently that has a capacity of 600 tonnes per month- It has the potential to quadruple capacity in this existing facility, which occupies only about 30 per cent of its newly acquired land area of 26 acres- With plans underway to produce 16-inch diameter stainless steel pipes and alloy pipes, the ability to seize the opportunity and sustain its FY11-FY13 (fiscal year 2011-2013) earnings Compounded Annual Growth Rate (CAGR) of 37-2 per cent beyond FY13 is bright- Trading at a cheap CY12 single-digit PER of 8-1x, interest in the stock should gain traction as it beefs up the manufacturing capability and the downstream O&G investments into Johor gain momentum- As for the broader market, last week's positive sentiment is expected to continue to drive up the benchmark index- While concerns about the eurozone debt crisis, rising inflation globally and corresponding interest rate increases, and China tightening further its monetary policy that could affect demand, still abound, our government's resoluteness in driving domestic expansion through clear road maps should lead to an inflow of foreign funds- Of course, the world would be watching closely for the outcome of the European finance ministers meeting today to discuss support for Greece beyond the ?110 billion rescue granted a year ago, and the US housing data this week- Locally, the consumer price index and gross domestic product numbers that will be released on Wednesday are expected to support Bank Negara's recent monetary tightening- Consensus are for a 3-1 per cent and 4-9 per cent expansion in both economic indicators respectively- Technical outlook Share prices on Bursa Malaysia rebounded on Monday in line with regional markets after better-than-expected US jobs growth boosted optimism in the world's biggest economy- The FBM KLCI gained 3-91 points, with Hong Leong Bank (+76 sen) and DIGI (+56 sen) leading gains, to settle at 1,519-41, off a low of 1,515-39, in lack lustre trade totalling 716-2 million shares worth RM1-07 billion- Stocks extended gains the next day as regional markets improved following a rebound in commodity prices from last week's sell-off, but sentiment stayed cautious on inflation concerns- The FBM KLCI added 3-96 points to end at 1,523-37-The local stock market staged a strong rebound on Wednesday, led by banks and oil & gas stocks after banks raised their base lending rates and news dailies hinted of plans by Petronas to invest RM50 billion in an integrated oil & gas complex in Pengerang, Johor- The FBM KLCI rose 12-66 points to close at 1,536-03, off an opening low of 1,525-72 and high of 1,538-54, on improved trade totalling 1-04 billion shares worth RM1-62 billion- However, the market staged a profit-taking pullback the following day, dragged lower by regional weakness after overnight US stocks fell as commodity prices dipped amid concern over rising inflation and interest rates, but oil & gas stocks extended gains- The blue-chip index slipped 3-74 points to settle at 1,532-29-Oil & gas stocks extended their rally on Friday on news Petronas will invest US$20 billion in a refinery and petrochemicals complex bordering Singapore, spilling over to the broader market on improving buying momentum- The index gained 8-45 points to close at 1,540-74, off the week's high of 1,545-21, as gainers led losers 499 to 258 on increased turnover totalling 1-18 billion shares worth RM1-71 billion- The trading range for the FBM KLCI was 29-82 points last week, compared with the 30-21-point range the previous week-While the daily slow stochastics indicator for the FBM KLCI climbed to register a mild overbought reading, the weekly indicator flashed a fresh buy signal at the neutral region- The 14-day and 14-week Relative Strength Index (RSI) indicators are stronger after last week's recovery, with both indicators registering healthy hook-ups and readings above 50-A buy signal was triggered by the daily Moving Average Convergence Divergence (MACD) trend indicator mid last week, while the weekly MACD indicator's signal line slide has decelerated, suggesting the market is losing downward momentum- A buy signal was also flashed on the 14-day Directional Movement Index (DMI) trend indicator, implying further upside bias this week, but the ADX line continued easing to signal a trendless market-Conclusion Given the more bullish momentum seen on technical indicators for the FBM KLCI, investors can expect further upside bias for the local stock market this week with the oil & gas stocks stealing the limelight-For this week, the blue-chip index should overcome the immediate resistance of 1,552, which represents the 23-6 per cent Fibonacci Retracement (FR) of the fall from the 1,576-95 record high of January 6 to the 1,474 pivot low of November 29 last year- The next immediate hurdle would be 1,565, the April 4 peak, with the all-time record high of January 6 hard to beat- Nevertheless, downside should be adequately cushioned at 1,532, with the 100-day and 50-day moving averages of 1,526 and 1,525 acting as stronger support buffers- The next significant retracement support is at 1,513, which is the 61-8 per cent FR-...

More