Source: TradingView (KLCI: Black; STI: Red; JKSE: Orange)
Malaysian blue chips have been outperforming markets in the region all while the risk of trade war and election uncertainty weighing on market sentiment. Kuala Lumpur Composite Index (KCLI) made a year-to-date gain of 3.3 percent, largely driven by big-cap banks. The broader small and mid-cap market did not perform as well due to risk of trade war and election uncertainty.
DBS: Malaysia’s Economic Fundamental Still Intact
Despite investors’ near term cautiously bullish sentiments, DBS notes that nothing fundamentally negative has changed for Malaysia. The global synchronised economic growth and corporate earnings rebound will remain supportive of the equity market. Based on technical analysis, KLCI remains on an uptrend as it stays above its 50-week moving average line. The strength in the benchmark index is largely attributed to the rally in banking stocks amid improving earnings outlook and interest rate hike by Bank Negara Malaysia (BNM).
Investors Takeaway: DBS’ Top 8 MY Stocks To Own
For investors who are looking to increase exposure to the Malaysian market, here are DBS’ top eight picks to consider.
- Wah Seong
Wah Seong has been identified by DBS as a force to be reckoned with, given its operational facilities spanning across 18 countries. DBS notes that this allows Wah Seong is able to tap into various markets and grow its customer base. Wah Seong’s clientele has grown to include Southeast Asia, Europe, India, China, Australia, Canada, the Middle East, East Asia, Africa and Latin America. On the back of a total orderbook of RM2.8 billion, DBS is forecasting earnings-per-share (EPS) to grow at compounded annual growth rate (CAGR) of 22 percent for FY17-19.
BUY, TP RM1.90
- Yong Tai
DBS has selected Yong Tai as its top pick for the Malaysia property sector. According to DBS, Yong Tai’s unrivalled competitive advantages arising from its unique tourism appeal and synergistic property product offerings. DBS envisions Yong Tai to deliver an exponential EPS CAGR of 84 percent over FY17-20. With its 138-acre Impression City and Impression Melaka riding on the booming Chinese tourism, Yong Tai has vast potential, yet is is under-appreciated by investors.
BUY, TP RM2.00
- SKP Resources
With its key clients projecting healthy growth prospects, SKP Resources is expected to perform in 2018. DBS has given SKP Resources a positive earnings outlook and notes that there is potential for further immediate re-rating if full-year margins come in above expectations. Moreover, SKP Resources currently has ample spare capacity in its plants to take on more contracts. A faster-than-expected rise in utilisation as a result of new contracts will also provide further re-rating catalyst for SKP Resources.
BUY, TP RM2.50
- Bumi Armada
Bumi Armada is sitting in an enviable position with its earnings expected to be boosted by revenue arising from full production ramp-up of Armada Olombendo and Kraken FPSO. At the same time, lower amortisation is expected following asset-impairment losses and cost management initiatives, particularly for the Offshore Marine Services (OMS) segment.
Bumi Armada has amassed a massive orderbook of RM22.3 billion that will provide earnings visibility over the medium term. In addition, DBS is sanguine of Bumi Armada’s near-term prospects following increased global tender activities for floating, production, storage and offloading (FPSO) vessels on the horizon.
BUY, TP RM1.05