Malaysian equities saw a broad-based sell-off after the Pakatan Harapan (PH) muscled out the former ruling party Barisan Nasional. With concerns of PH’s “less friendly” manifestos toward businesses, investors are looking to reposition their Malaysian exposure to reduce the impact of the near-term volatility.
Moving forward, UOBKH recommends taking a defensive approach towards the Malaysian market. UOBKH suggests that investors shift their portfolio preference into the following four investment themes.
Investors Takeaway: 4 Key investment themes To Save Your MY Portfolio
E&E Trend Riders
Malaysia’s electrical and electronics (E&E) industry has been riding on a multi-year growth trend. UOBKH notes that the industry will continue to produce dependable growth stocks in 2H18.
Inari is close to clinching three new projects from OSRAM Opto Semiconductors, which includes facial recognition systems (for biometric authentication), health sensors for smart devices and mini LED for billboard applications. These projects will boost Inari’s under-utilised capacity for iris scanner.
Broadcom, one of Inari’s top customers, is looking at sanctioning plans to transfer more in-house jobs to Inari’s subsidiary (Inari Semiconductor Lab (ISL)). The transfer is a signal that Inari will continue benefitting from Broadcom’s high-margin and high-value engineering focus.
BUY, TP RM2.68; Current Share Price $2.44
Having seen its share price decline for the past few months, UOBKH thinks that the worst is over for VS Industry. UOBKH notes that earnings should improve in subsequent quarters on margin improvement and will be introducing a few new replacement models for its US customer in the next one year. In the next few years, UOBKH expects VS Industry to achieve a three-year core net profit CAGR of 22.4 percent driven by higher sales volume from its key customers.
VS Industry has a minimum 40 percent dividend payout policy, which should translate into a dividend yield of 2.1-4.1 percent for FY18-20. Should there be any large contract wins from existing/new customers or a favourable forex environment, its share price could well be catalysed.
BUY, TP RM1.85; Current Share Price $1.72
At the start of the month, Yong Tai’s critically-acclaimed Encore Melaka theatre made its maiden performance. So far, audiences have been showing strong interest. Yong Tai’s expected growth in earnings will be largely underpinned by Yong Tai’s Encore Melaka. With 70 percent of its annual capacity already locked in by travel agents, UOBKH singled out Yong Tai’s high earnings visibility as a plus point. As operating cash flow improves, UOBKH thinks that there could even be dividends distributed.
BUY, TP RM2.10; Current Share Price $1.33
Driven by the opening of new attractions like its Sky Casino, Sky Avenue retail mall, Theme Park Hotel and the Genting Premium Outlet at the mid-hill, Genting Highlands recorded an impressive 26 percent year-on-year growth in visitor arrival in 1Q18. With the expected opening of 20th Century Fox Theme Park in later this year, visitor arrivals is expected to grow by another 20 percent. UOBKH foresees Genting Malaysia to appreciate ahead of the opening of Fox Theme Park, similar to the share price reaction of Macau casinos ahead of significant capacity expansion.
BUY, TP RM6.28; Current Share Price $5.18
Deep Value Plays
Another investment theme that UOBKH recommends is the deep value stocks. While there are a number some deep value stocks, UOBKH warns investors to exercise caution when picking deep value plays to avoid catching the falling knife. In particular, UOBKH prefers deeply sold down stocks that can sustain high yields in the interim period as it reflects their defensiveness in an uncertain market.
Astro Malaysia, Berjaya Sports Toto, Magnum
Among the deep value plays, UOBKH prefers high yielding stocks like Astro and Berjaya Sports Toto. UOBKH also likes Magnum as a top dividend yield play given the expected reinstatement of its payout ratio to 90-100 percent (current: 70 percent) once it builds up sufficient reserves. This will drive dividend yield up to 7-8 percent.
Underweight On Expensive Sectors (Gloves, Banks)
Among the Malaysian sectors, UOBKH recommends paring stakes of the glove manufacturing sector and banking sector. Given its prominent 104 percent rise in valuation since 2017, the glove manufacturing sector has reached an unhealthy level. UOBKH expects the sector’s earnings growth to disappoint. Among the large-cap sectors, banks may also underperform in the interim period given the likelihood of foreign investors’ exit.