Investing in the Malaysian stock market is not for the faint hearted. After the coalition opposition Pakatan Harapan toppled the Barisan Nasional in the General Elections, many past deals made by the former administration were scrapped or reviewed. Investors became increasingly risk averse and many MY stocks declined significantly to depressed valuation by the end of 2018.
However, UOBKH thinks that investors can look forward to a better year ahead given the trough in valuation of Kuala Lumpur Composite Index. To help investors beat the broader index, UOBKH recommends investors to look at two strategies: Sustainable yield plays, and Oversold counters with potential catalysts.
Investors Takeaway: 2 Investment Strategies To Beat KLCI By UOBKH
Investment Strategy 1: Sustainable Yield Plays
One of the most prominent investment strategies to stick with as we start 2019 is to continue keeping faith in dividend plays. UOBKH believes that companies that pay generous dividends, backed by good interim earnings visibility will be the most susceptible to upward re-rating.
According to UOBKH, the top dividend yield plays are Astro, Magnum, Bermaz Auto, IGB REIT, and Gabungan AQRS. UOBKH notes that Magnum, Bermaz Auto and IGB REIT. These counters are secured with strong revenue and stable cash flow. Specifically, Astro’s current indicative dividend yield of 7.9 percent is especially attractive.
Astro: BUY, TP RM 1.54; Magnum: BUY, TP RM 2.40; Bermaz Auto: BUY, TP RM 2.40; IGB REIT: BUY, TP RM 1.85; Gabungan AQRS: BUY, TP RM 1.73
Investment Strategy 2: Oversold Counters With Potential Catalysts
Another strategy that UOBKH recommends is to bank on oversold counters that are awaiting near-term catalysts. UOBKH believes that the depressed stocks are at the trough of their valuation and any positive news can catalyze near-term spurt in share price. Among the Malaysian stocks, Gabungan AQRS, MyEG, VS Industry and Yinson fall into this investment strategy.
Based on UOBKH’s research, there are two catalysts that could reignite interest in Gabungan AQRS. Firstly, Gabungan AQRS is one of the potential winners to secure Pan Borneo Highway Sabah contracts following the government’s go ahead in Budget 2019 to resume the remaining stretches of the highway. It is in contention for all four contracts of the Pan Borneo Highway Sabah project. If it is able to secure all four contracts, the construction can contribute RM90-110 million in net profit for Gabungan AQRS.
Secondly, stellar performance from its property arm is expected in 2019. Gabungan AQRS launched its maiden affordable apartment in 2018, which has generated strong interest from potential buyers. In the same year, Gabungan AQRS re-launched The Peak project in Johor. Both projects are expected to contribute significantly to Gabungan AQRS in 2019.
BUY, TP RM1.73; Current share price RM0.91
MyEG is an indispensable enabler of e-government services through the efficient online system that it provides. UOBKH notes that an independent committee is currently reviewing the entire foreign worker space and all related systems.
The management believes that positive surprises could come from liberalization efforts for foreign workers’ hiring process. Also, MyEG’s new venture into approval for Myanmar foreign workers will add new streams of revenue for MyEG. More business is expected once the government reopens application approval for Bangladesh and Nepal foreign workers, which was frozen since the Bestinet scandal.
BUY, TP RM1.62; Current share price RM0.98
VS Industry is awaiting the award of prospective contracts that has the potential to catalyse its share price. According to UOBKH, if the prospective contracts materialise, it would be a game changer for VS Industry. The contract itself could add 18.5 percent of FY20F net profit to VS Industry and help the group to diversify its customer concentration risk.
BUY, TP RM 1.05; Current share price RM0.81