But after ten months of almost straight gains fuelled by the abundance of cheap money, the Year of the Tiger, according to consensus, is likely to be a more challenging time for bullish investors.
According to RHB Research Institute, the recent market pull back suggests investors’ have turned cautious, while at the same time sustained market volume indicates higher churn rate as investors’ investment horizon gets shorter.
The research house advocates investing in healthy companies with sound fundamentals to ride through the volatility.
CLSA Asia Pacific Markets sees the year being fought out in a tug-of-war between liquidity and fundamental factors.
This, it said, will result in choppier market conditions. To ensure outperformance, CLSA Malaysia head of research Clare Chin says investors should buy on dips.
OSK Research, in its outlook for the year, also foresees a bumpy ride ahead for investors. It is of the view that the optimism on corporate earnings and the equity market in the past few months as somewhat “misplaced.”
However, the firm’s head of research Chris Eng believes that the tide of liquidity will continue to support the market.
While investors continue to fret over the risk of tighter monetary policy in 2010, JP Morgan opines that Malaysia is unlikely to raise rates or curb asset growth anytime soon.
It says conditions are still conducive for domestic funds to remain invested in riskier asset like equities rather than sitting idle on cash. Trawling through recent strategy reports by local and foreign brokerages, the consensus view is that equity prices, both at home and abroad, are no longer cheap on historical basis. The overall uptrend for the market, however, is still intact.
StarBizWeek has selected 10 stocks representing diverse sectors polled from various analysts and fund managers (we have avoided the 25 stocks picked out by Standard & Poor’s as they have been published in an earlier article).
While reputable blue chip stocks will continue to hog investors’ radar, we see value in under appreciated smaller sized firms.
Stocks such as Malayan Banking Bhd and Malaysian Pacific Industries Bhd, which have turned a corner, have yet to fully convince the market about their recovery prospects, while Hartalega Holdings Bhd and SapuraCrest Petroleum Bhd have the making of a global champion.
Malayan Banking Bhd
The country’s largest banking group was a laggard compared to its rivals in the past 10 months. But after two consecutive quarters of solid performances that wowed the market, Maybank is set to roar in the Year of the Tiger.
“With strong organic growth from domestic operations, Singapore and especially PT Bank Internasional Indonesia (BII), the negative impact from the expensive acquisitions (of BII and Pakistan’s MCB) would be more than nullified as financial year ending June 30, 2011 (FY11) earnings per share (EPS) is expected to exceed pre-acqusition levels,” says RHB Research Institute.
Consensus estimate put Maybank’s earnings at 44.4 sen per share for FY10, and assuming that it would return half of the profits as dividends, current yield for the stock stands at above 3%.
Malaysian Resources Corp Bhd
Seven out of 10 analysts who track MRCB have a “buy” call on the stock, despite concerns over earnings dilution arising from the sale of rights shares to raise RM508mil in fresh capital.
MRCB has earmarked RM300mil from the total proceeds for future acquisition and landbank expansion. It has been linked to several potential land deals in the Klang Valley, but details are scanty at this juncture.
Analysts say MRCB’s “irresistible angle” will keep investors glued to the stock. MRCB is recent years has completed its restructuring and streamlining initiatives, putting itself in a stronger position to take on new projects.
Malaysia Airports Holdings Bhd
MAHB is a lower risk proxy to its biggest customer AirAsia Bhd, which contributed 44% of its total passenger traffic last year, and as a proxy play of Malaysian Airline System Bhd’s recovery.
The airport operator has also discovered how profitable retail business can be, having retro-fitted KLIA to boost retail space by 60% and the refurbished Subang Airport looks like a shopping mall.
MAHB, the cheapest airport operator in the world, is trading at just 11 times its projected EPS for this year versus the global average of 18 times, according to Credit Suisse.
With its concession agreement with the Government sorted out, significant risk to earnings has been removed. A re-rating catalyst would come from a possible further sell-down from Khazanah Nasional Bhd, which currently owns 67.7% of MAHB.
SapuraCrest Petroleum Bhd
SapuraCrest is fast becoming a major player in the region’s oil and gas industry’s deepwater pipe-laying segment.
Through various joint ventures, SapuraCrest has build up an orderbook in excess of RM15bil to keep it busy over the next five years. The company is eyeing for new jobs in India and Australia, where capital spending on new oil and gas projects are on the rise.
SapuraCrest reported a record net profit of RM115mil for the year ended Jan 31, 2009 (FY09). CIMB Research projects that SapuraCrest’s net profit will continue to rise over the next three years at a compounded annual growth rate of 30%, which is the highest in the sector.
Deputy executive chairman Datuk Shahril Shamsuddin, through his family holdings, controls 40.3% of SapuraCrest, followed by Norwegian Seadrill Ltd (23.6%) and the Employees Provident Fund(8.25%).
CSC Steel Holdings Bhd
The outlook for steel miller CSC Steel is favourable over the next few quarters underpinned by rising flat steel product prices that will sustain inventory replenishing activities by steel stockist.
The group’s balance sheet is healthy, with a net cash position of RM303mil as at Dec 31, 2009 against RM145mil recorded a year ago. Trading at about seven times to its trailing 12-month EPS of 24.4 sen, the stock valuations are attractive compared to the broader market.
The company has proposed a final dividend of 13 sen per share and a special payout of 7 sen for year ended Dec 31.
This translates to gross dividend yield of 12.5%.
Daibochi Plastic and Packaging Industry Bhd
Daibochi is the biggest listed plastic flexible packaging (PFP) maker in the country with a 30% market share.
In the past, earnings for PFP makers had been erratic due to swings in raw material cost.
Since last year, PFP makers like Daibochi have put in a “cost plus” arrangement in contracts with customers to smoothen out the volatility. This allows Daibochi to sustain its current pre-tax margin, and the group’s net profit has been inching up from RM5mil in the first three months of 2009 to RM6mil in the last quarter of the year.
Hartalega Holdings Bhd
Hartalega is the global market leader in the nitrile glove business, which gives the company some pricing advantage over its rivals. With 10 new high capacity production lines to come on stream in stages over the next 12 months, Hartalega’s production is expected to reach 9 billion pieces per annum by March 31, 2011 (FY11) from 6.5 billion pieces currently. A healthy cash pile of RM43mil, or 18 sen per share, gives the company flexibility to fund expansion, or pay shareholders higher dividends.
Analysts say that local glove makers have proven to be “recession proof” businesses, with demand expected to reach 150 billion a year in 2010.
IJM Land Bhd
The company was established following the merger of IJM Corp Bhd’s premium brand and Roadbuilder’s extensive landbank. Analysts estimate that IJM Land’s current 5,300 acres landbank, located in key areas in the Klang Valley, Penang and Johor.
Current unbilled portion amounts to about RM1bil, which is around consensus turnover projection for this year.
IJM Land’s potential to become a major property player is somewhat under appreciated by overseas investors given that foreign shareholding in the company stands at around 13% compared with parent company IJM Corp’s 32% and rival SP Setia Bhd’s 26%.
Malaysian Pacific Industries Bhd
MPI plans to triple its capital expenditure (capex) to around RM300mil for financial year ending June 30, 2010 to boost capacity and enhance test capabilities.
The capex, acording to CIMB Research, will result in a RM170mil rise in annual revenue, as well as improved margins.
MPI’s strong balance sheet places the company in a good position to ride the current upturn in the semiconductor industry, although questions remain on whether the global recovery is sustainable.
CI Holdings Bhd
CI Holdings derives 92% of its turnover from beverage sales, with current revenue split of 65% from carbonated drinks and 35% from the non carbonated segment. The company made a net profit of RM21mil in finacial year ended June 30, 2009 (FY09), up from RM14.5mil in FY08.
Half year earnings in FY10 has already reached RM15.9mil. At 8 times its trailing 12-month EPS, CI Holdings is valued at half price compared to rival Fraser & Neave Holdings Bhd.
Tight stock liquidity means CI Holdings will probably continue to trade at a discount to its bigger rival, but its prospective dividend yield of about 6% is above average.
Thestar
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