THE headline FBM KLCI continued to do well last week, gaining another 1.2%. This brings cumulative gains for the year-to-date to 4.2%. Support for index-linked heavyweights remained strong even though overall trading volume showed no overt increase in investor interest.

The steadier performance could be attributed, in part, to improved sentiment in global markets. Bellwether indices in most regional markets treaded on a positive footing last week.

As mentioned previously, there is growing conviction amongst investors that even though the US Federal Reserve is still expected to raise interest rates in 2H2015, it will do so at a moderate pace. As a result, investors are more comfortable with putting money into emerging markets in search of higher yields.

Chinese stocks, notably, have been on a tear, gaining 19.5% so far this year. Stock prices are rallying with investors betting on further stimulus from the government to support flagging growth. Recent slew of data points to a continued slowdown in the world’s second largest economy, which is not good news for the countries dependent on exports to China. Commodity prices, such as iron ore, have come under heavy pressure in recent days.

The other standout market in the region is Japan. The Nikkei index is up 11.4% for the year-to-date. In addition to government-linked funds’ support in the market, stocks are buoyed by expectations that the falling yen will benefit exporters. The Bank of Japan is maintaining unprecedented monetary stimulus to spur inflation and economic recovery.

Indeed, a weaker currency appears to be the policy of choice for many, in the face of flagging economic growth.

Back home, the ringgit started the week on a weaker footing but regained some lost ground to around 3.67 to the US dollar on Friday.

In other news, oil prices weakened anew last week. Progress on talks with Iran on its nuclear programme more than offset the preceding week’s concerns over supply disruption stemming from the conflict in Yemen. The former could eventually lead to lifting of sanctions and resumption of oil export from the country, adding to prevailing supply glut. The Brent crude futures fell back to around US$55 per barrel, at the point of writing.

Total value for my portfolio was up 1.6%, buoyed by Willowglen’s 14% gain for the week. This lifted total returns, since inception, to roughly 9.5%. I continue to outperform benchmark index, which is up by a mere 0.26% over the same period.

I bought about RM15,000 worth of shares in Elsoft Research (Fundamental: 3/3, Valuation: 2.1/3) last week.

The Penang-based technology company designs and develops automated test equipment for companies to inspect LED, which is a component in printed circuit boards used mainly in the semiconductor, consumer products, optoelectronic and automotive industries.

The company has been doing very well, with strong demand coming from the robust growth in mobile devices, in particular.

Revenue grew at a compounded annual rate of 41.5% between 2010 and 2014, to RM45.1 million. Over the same period, net profit expanded at an outsized pace of nearly 50% annually, to RM19.8 million. The company has maintained very healthy margins. ROE has been rising steadily from 10% in 2011 to nearly 30% last year.

The MSC-status company has also just successfully renewed its pioneer status and will enjoy tax exemption for the next 10 years until 2025.

Moving forward, Elsoft plans to expand its customer base and produce LED testing equipment for medical devices.

The company has a strong balance sheet with net cash of RM32 million at end-2014. This and improving cashflow from operations should see increasing dividends, in line with expected earnings growth. Elsoft has a minimum 40% dividend payout policy.

In fact, Elsoft has been rewarding shareholders with more, with annual payout ranging from a low of 46% to a high of 73% in the past five years.

In absolute terms, dividend has risen from 1 sen per share in 2010 to 7 sen per share in 2014. That translates into a net yield of 3.8% at the current price of RM1.83.

Notably, the stock is trading at a trailing 12-month P/E of only 17.02 times, relative to its strong double-digit growth.

Following the acquisition, my portfolio is now 67% invested.

This article first appeared in The Edge Malaysia Weekly, on April 6 - 12, 2015.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.