Investors are always on the lookout for undervalued stocks. Companies often go through cyclical ups and downs, and when a company has a solid foundation but is going through a temporary rough patch, it may be a good time to invest in the stock while waiting for a recovery. In this article, we will look through three stocks that analysts believe to be undervalued.
Food Empire Holdings
RHB has chosen Food Empire Holdings (Food Empire) as their top pick for the consumer sector due to the stabilization and improvement of the economic conditions of the primary markets that the business targets.
The business’s primary market in the Commonwealth of Independent States seems to have stabilised. Furthermore, Food Empire’s main market in Russia (more than 40 percent of revenue) is seeing the Russian Ruble getting stronger on the back of higher oil prices and improvements in the Russian economy. As such, we can expect stronger margins for Food Empire, since raw materials are in US dollars.
Going forward, Russia will be hosting the FIFA World Cup next year and Food Empire is well-poised to see an increase in demand from higher domestic consumption, especially in the instant coffee segment.
The Crimea crisis has no doubt reduced the profitability of the Commonwealth region, leading to Food Empire to target expansion in Asian countries to grow its customer base. It is expected that higher contributions will come from its new markets in Vietnam, China and Myanmar over the next two years.
The firm has increased the utilisation rates of its snacks, non-dairy creamer, and coffee plants to about 80 percent and has changed its sales mix to target selling higher-margin products which will help to drive growth. This is coupled with the possibility that the group will be building a new snack plant to increase its capacity.
Overall, the Food Empire has been rated as a “Buy” by RHB with a target price of $1.00. It is currently seen as undervalued as it is trading at roughly 12 times the forecasted FY18 earnings. Analysts expect that a 18 times price-to-earnings multiple will be more appropriate as it is in line with the industrial average.
Though Delfi has seen a tremendous decrease in its share price, analysts at DBS Research sees the potential in the stock and has upgraded the stock to a “Buy”.
2018 is expected to be a more promising year for Delfi as its operating results are expected to have bottomed out and will be recovering from there on.
The poor performance in 2017 was largely due to poor consumer demand in Indonesia, and the firm’s production-rationalisation exercise to eradicate underperforming stock keeping units which ultimately led to a decrease in sales of 5 percent for 9M17. Meanwhile, net profit fell about 19 percent to US$18.2 million.
Management has noted that the rationalisation process is almost completed and that Delfi is ready to launch new products into the market. A potential catalyst for the company is Indonesia’s upcoming Presidential election in 2019, and a potential fiscal stimulus can lead to stronger consumer purchasing power which will help drive up sales and profits.
Also, raw material costs have been kept low to the benefits of Delfi’s margin. 2018 may still be echoing the events of 2016 where prices of soft commodities will come down and margins can expend for Delfi.
Analysts are predicting an increase in earnings and a growth rate of 20 percent per year for FY18 and FY19. Due to the slump in share price, analysts believe Delfi to be an undervalued stock that is worth investing in as the stock is still the market leader in chocolate confectionery and its future performance is likely to improve. Given that its stock is currently at its 6-year low, it may be a good time to accumulate. DBS assigned Delfi with a “Buy” call with a target price of $1.80, which implies a 24 percent potential upside from the current share price of $1.45.
Avi-Tech Electronic’s (Avi-Tech) net profit is expected to grow by 10 to 15 percent over the long run as the company is moving alongside theme of “ digitalisation macroeconomic trends and increased electronics in the automotive sector”, according to the analysts at RHB.
The firm has seen an increase in revenue of 31.3 percent but gross profit margin fell 3.1 percent to 26.4 percent due to higher contribution mix from the manufacturing and Printed Circuit Board Assembly business segment.
Analysts are expecting the firm to utilise its war chest of $32 million to make profit-accretive acquisitions and spur growth to increase profitability. Along with its strong cash generating ability, management would have significant headroom for acquisitions.
With the rise of other disruptive technologies and increasing move towards the adoption of cloud computing and “smart” cities, it is likely that the need for semiconductor burn-in and other related services will increase which will benefit the group. Overall, with a promising future ahead, RHB opines that the company’s current share price at $0.475 is attractive and gave it a “Buy” call with a target price of $0.59.