The Malaysian market appears to have developed an unseen phenomenon of extreme risk aversion behaviour which created a huge valuation gap between “safe haven” and “flight” stocks (those that are facing various kinds of uncertainties).
Investors Takeaway: 5 Malaysian Stocks You Can’t Go Wrong With
Given the external concerns and moderating global risk-taking mode, here are five Malaysian stocks that UOBKH thinks you can’t go wrong with.
- Bumi Armada
Bumi Armada is one of the world’s largest floating production, storage and offloading (FPSO) players. It has recently commenced operations on four new floating projects, with 8-18 years of firm contract tenure, which UOBKH expects to become significant contributors. Once these earnings are recognised, Bumi Armada’s share price is expected to be re-rated.
Meanwhile Bumi Armada’s offshore marine services’ (OMS) earnings are also growing thanks to ramp-up of Lukoil activities. Armada KP-1, which idled for a long time, completed its first pipelay project in Indonesia and will continue to work on more Indonesian jobs on a sporadic basis.
BUY, TP RM1.06; Current share price RM0.73
- Tenaga Nasional
The Malaysian government recently approved a 1.35 sen/kwh electricity tariff hike for the commercial and industrial segments. These two segments account for 75 percent of Tenaga Nasional’s customers. According to UOBKH, this will allow Tenaga Nasional to claws back uncontrollable fuel price fluctuations (coal, gas, LNG) and anchor its future earnings’ sustainability and predictability. The regulatory change will also allow Tenaga Nasional to provide a more sustainable dividend yield in the region of 4-5 percent.
BUY, TP RM17.70; Current share price RM15.80
- Cahya Mata Sarawak
Cahya Mata Sarawak has been hit by negative sentiments of political risks. However, UOBKH finds that the concerns of political risks are blown out of proportion. Cahya Mata Sarawak’s earnings outlook remains bright with OM Sarawak expected to turn around significantly in 2018. UOBKH notes that demand and average selling price for manganese and ferroalloys at OM Sarawak will continue to be sustainable.
The much-awaited MPAS plant is also starting to gain momentum and is on track to start construction soon. The plant will house an annual capacity of 1.5 million ton of food, feed and fertiliser phosphates, making it the largest plant in Southeast Asia. UOBKH expects Cahya Mata Sarawak’s MPAS plant to drive value for Cahya Mata Sarawak shareholders.
BUY, TP RM4.00; Current share price RM3.50
Scientex is one of the world’s largest producers of industrial stretch film with an export market that covers more than 60 countries. In recent years, it has emerged as one of Malaysia’s leading manufacturers of consumer packaging products via M&As. UOBKH is expecting a strong upcoming quarter from Scientex as the maiden contribution from Klang Hock Plastic Industries begin.
Overall, UOBKH likes the promise of Scientex’s long-term prospects, attributed to greater economies of scale at its manufacturing segment post acquisitions and landbank expansion to support the property segment.
- Serba Dinamik
According to UOBKH, investors can expect more upside in earnings from Serba Dinamik going forward. Leveraging on its proven track record for an extremely high renewal rate for its existing O&M orderbook, Serba Dinamik is expected to capture more growth and diversification. Serba Dinamik is targeting to meet hit RM7.5 billion in its orderbook by end-2018 and clinch more asset ownership projects to meet its target of owning 200MW of equity-accounted power capacities. UOBKH foresees its asset ownership projects to help Serba Dinamik gain new O&M/EPCC contracts and also contribute to its long-term recurring income stream and diversification to utilities/renewable energy.
Given Serba Dinamik’s superior diversification, earnings growth (20- 36 percent compounded annual growth rate) and return-on-equity (23 percent), UOBKH thinks that Serba Dinamik deserves to be valued at a premium to its peers. Thus, UOBKH has set a target price of RM4.30 for Serba Dinamik.
BUY, TP RM4.30; Current share price RM3.90