With the pending update to the constitutions of KLCI and the Malaysia side of KL-Singapore High Speed Rail (HSR) to adopt the project delivery partner (PDP) model, there are five Malaysian stocks that you need to own to benefit from these changes.
Changes in KLCI
With the upcoming semi-annual review of Kuala Lumpur Composite Index (KLCI), there are several removals and new inclusions that are expected. Based on the regulations, a company will qualify to be in KLCI if their market cap is ranked above twenty-fifth in position or disqualify if it falls to thirty-sixth. Using the criteria, Press Metal and Hartalega Holdings will make the list while none will be deleted after omitting Nestle.
Since there are more companies that qualify than those that are disqualified, the lowest ranking constituents will be removed. Based on this, British American Tobacco and IJm Corporation could be deleted from KLCI for being the bottom two.
An Advantage To Malaysian Companies given by PDP Model
MyHSR Corporation called for a tender to appoint a PDP for the HSR of which will act as the project manager for the Malaysia side. 96 percent of HSR will run on Malaysia’s west coast while only the balance 4 percent runs in Singapore.
This will be the similar model used in MRT SBK Line and MRT SSP Line where the PDP will be responsible for developing the detailed design of infrastructure, interface management, land acquisition process and stakeholder acquisition.
Effectively, this will separate the project management away from financing management.
After a poor performing FY17, Axiata’s core earnings per share (EPS) is expected to rebound by 29 percent in FY18F and 50 percent in FY2019F. Its Indonesia investment, XL will be contributing more towards Axiata and net profit for Airtel (post-merger of its Bangladesh investment, Robi with Bharti Airtel) should breakeven by end of FY18.
Most significantly, its share of accounting for the loss from its equity stake in India’s Idea will end post-merger with Vodafone. The loss suffered from Idea was one drag on Axiata.
Analysts from CIMB Research gave Axiata a “Buy” call with a target price of RM 6.00.
Tenaga Nasional is the largest public-listed power company in South East Asia and is enjoying the monopoly for being the only electric utility company in Malaysia. It continues to offer investors a resilient organic growth potential in its earnings through the building of four new power plants in Malaysia.
Furthermore, they have made several acquisitions overseas which will be a catalyst if these new assets are able to deliver strong earnings. The mix of its organic and acquisition-driven growth along with its monopoly in Malaysia will offer investors a unique proposition.
Analysts from CIMB Research gave Tenaga Nasional a “Buy” call with a target price of RM 15.70.
Gamuda might emerge as the biggest beneficiary of the PDP model of the fast expanding railway segment in Malaysia. Currently, the East Coast Rail Link (ECRL), Klang Valley MRT and HSR have yet to complete their tender procedure.
With its expertise in tunnelling and PDP in the past 2 MRT lines, the company will be able to bank on its experience and reap from this boom. It is the only company which has experience being a PDP through its MMC-Gamuda JV.
Analysts from CIMB Research gave Gamuda a “Buy” call with a target price of RM 6.15.
Despite being at risk to be deleted from KLCI, fundamentals of IJM remains strong. As one of the leading conglomerate and construction group in Malaysia, they have a strong chance to secure civil works projects in the HSR with over 30 years of experience in the civil engineering segment.
Analysts from CIMB Research gave IJM Corp a “Buy” call with a target price of RM 3.87.
As a conglomerate that spans across 12 business divisions, Sunway is a usual suspect that may benefit from the PDP program of HSR. Sunway’s subsidiary, Sunway Construction is a major builder of guideways and station works in Malaysia. Sunway Group has a strong track record of securing contracts based on previous MRT lines.
Analysts from CIMB Research gave Sunway a “Buy” call with a target price of RM 2.09.