July 2018 was the first month-on-month gain for KLCI since the start of 2018. In this three-part series, we highlight six investment themes recommended by CIMB for investors keeping an exposure in the Malaysian market.
Investment Theme 1: Riding On Government Efforts To Reduce Illicit Trade
- British American Tobacco Malaysia
British American Tobacco Malaysia (BATM) is showing signs of improvement as the new government’s regime raised hopes for a major crackdown of the illicit market (63 percent in market share in 1Q18). Moreover, BATM’s recent introduction of the value-for-money Rothmans brand serves as a potential countermeasure against the illicit market. In just two quarters, Rothmans’ legal market share grew to three percent. CIMB also foresees that a potential rejuvenation in consumer sentiment could lead to an uptick in sales volume for BATM.
BUY, TP RM38.66; Current share price RM37.00
Investment Theme 2: High Crude Oil Prices
- Velesto Energy
After three years of consecutive losses, Velesto Energy is expected to make a dramatic recovery to profitability from 2H18 onwards. CIMB highlights that this will be achieved on the back of reduced costs and higher utilisation rates following the return of Petronas’ drilling activity brought about by higher oil prices. Based on the contracts secured to date, Velesto Energy is close to achieving CIMB’s forward-FY18 expected utilisation rates of 80 percent (vs average of 68 percent in 2017 and 20 percent in 2016).
BUY, TP RM0.33; Current share price RM0.28
Investment Theme 3: GLC Reforms
- Malayan Banking
CIMB highlights that Malayan Banking (Maybank) is now attractively priced, with a valuation of one-year forward price-to-earnings (P/E) of 12 times and price-to-book value (P/B) of 1.27 times. Moving forward, CIMB is projecting a net profit growth of 4.9 percent for Maybank in forward-FY18, on the back of the forecasted expansion of 6.1 percent in net interest income and 4.7 percent in non-interest income. Apart from its valuation, CIMB also likes Maybank for its attractive dividend yield of 6 percent, and also for its swift expansion in insurance income.
BUY, TP RM10.00; Current share price RM9.80
- RHB Bank
In 2H18, CIMB is expecting a double-digit net profit growth (12-13 percent year-on-year) for RHB Bank. This will be underpinned by lower impairment losses and continuous expansion in net interest income. Beyond FY18, CIMB is also projecting similar strong net profit growth driven by the increase in non-interest income and lower impairment losses. Given its attractive valuations of forward-FY18 P/E of 8.6 times and P/B of 0.78 times, CIMB recommends accumulating RHB.
BUY, TP RM 6.23; Current share price RM5.20
- Sime Darby Property
Sime Darby Property shares were recently sold down due to the suspension of the High-Speed Rail megaproject and uncertainty over Malaysian Vision Valley development project. However, CIMB thinks that the sell-down has been overdone as both projects do not have a material impact on CIMB’s projections. While CIMB notes that near-term earnings growth outlook may be volatile for Sime Darby Property, potential value enhancement from the ongoing monetisation of its assets will overshadow the volatility.
BUY, TP RM 1.85; Current share price RM1.29