3Q17 results season among Malaysian companies was a disappointment. Out of 128 companies that were tracked, 37 percent missed consensus expectations, higher than the 35 percent that missed consensus earnings in the last quarter results season. Companies whose results were in line with CIMB’s expectations fell from 56 percent to 48 percent.
Given the downbeat 3Q17 result, CIMB recommends five large caps to position for better investment returns in the upcoming quarters.
Investors Takeaway: CIMB’s 5 MY Large Cap Stock Picks To Be Excited About
1. Axiata Group
Axiata Group (Axiata) is the top Malaysian telco pick for CIMB which expects Axiata’s core Earnings Per Share (EPS) to rebound in FY18 and FY19 on stronger revenue growth and better EBITDA margin. CIMB also foresees Airtel Bangladesh to achieve net profit breakeven by end-2018. The cessation in equity accounting for Idea’s losses post-merger with Vodafone could also complete in 4Q18. The management has also guided that dividend payout ratio would revert to 85 percent in FY18 from 50 percent in FY16-17.
BUY, TP RM6.00 (Current Share Price: RM5.35)
2. Dialog Group
CIMB likes Dialog for its attractive low-risk business model, highlighting that Dialog is also well managed and has the potential to deliver robust earnings growth. Dialog is expected to grow its earnings by 58 percent over the next three years as several of its major projects come on-stream. This trait will allow Dialog to attract a broad base of investors, helping it to sustain its share price uptrend.
BUY, TP RM3.13 (Current Share Price: RM2.45)
3. Tenaga Nasional
Tenaga Nasional is CIMB’s value play among the five large cap stocks. CIMB highlights that Tenaga Nasional trades at 12 times forward FY18 price-to-earnings, making it the cheapest big-cap utility stock within coverage.
It is also worth noting that Tenaga Nasional has revised its existing dividend policy upwards, from a dividend payout ratio range of 30 to 50 percent to 30 to 60 percent recently. This translates into a decent dividend yield of four percent in FY18 forecasts. Meanwhile, the current undemanding valuation has likely to have priced in the negatives from the upcoming revision of the Incentive Based Regulation framework, giving investors an opportunity to accumulate.
BUY, TP RM15.70 (Current Share Price: RM15.38)
4. Malaysia Airports Holdings
According to CIMB, Malaysia Airports Holdings (Malaysia Airports) will continue to see attractive mid-single digit percentage traffic growth in 2018. This will be driven by AirAsia’s and AAX’s fleet expansion. Its Istanbul Sabiha Gokcen (ISG) airport has also recovered in international traffic growth from a poor 2016. This has helped to increase the probability of selling a minority stake in ISG to a strategic investor at a more attractive price. A partial stake sale would help Malaysia Airports to crystallise value and enable Malaysia Airport reduce risk exposure to a single, large overseas asset.
BUY, TP RM10.56 (Current Share Price: RM8.50)
5. RHB Bank
RHB Bank is the top banking pick in Malaysia thanks to its attractive valuation. In terms of P/E and price-to-book value, RHB Bank is trading at more than 25 percent discount to the sector. One potential catalyst for its share price is its “IGNITE 17” transformation programme, which has enabled the group to enhance its operating efficiency and improve its fee income generation in the longer term.
Buy, TP RM6.30 (Current Share Price: RM5.08)