Following the first part of this two-part series where we covered UOBKH’s top investment ideas for 2H19, we continue this series with a focus on UOBKH’s top four stock picks in Malaysia.
Investors Takeaway: UOBKH’s Top 4 MY Stock Picks For 2H19
⦁ ESG Play: Scientex
Scientex is one of the largest industrial packaging companies in the world. It is also a leading producer of flexible plastic packaging products. As a plastic manufacturing company, the recent rescind of resin prices from protracted trade war will be a boon for Scientex. According to UOBKH, every one percent drop in resin prices would increase manufacturing profit before tax by 0.7 percent.
Scientex is also on track to ramp-up its utilisation rate to 65 percent. This is up from 60 percent in FY18, driven by a maiden full-year contribution from Klang Hock Plastic Industries and new stretch film plant in Arizona. As part of its Vision 2028 strategy, Scientex intends to increase its manufacturing capacity to 1 million metric ton (current: 450k metric ton). Overall, UOBKH like Scientex for its steep discount to companies that have good earnings growth visibility and strong track records.
⦁ O&G Play: Yinson
Being one of the largest floating production storage and offloading (FPSO) players in the world, Yinson is one of the internationally competitive and well diversified stock that UOBKH likes. According to UOBKH, Yinson is currently in contention for three mega FPSO contracts in Brazil and Ghana. These projects have the potential to more than triple its earnings base if Yinson wins them. Besides that, the company has also been actively achieving key milestones and leading the global competition with multiple contract wins. UOBKH believes that the contract wins will be a catalyst for Yinson’s share price in the near future.
⦁ M&A Play: Axiata
Since the start of 2019, Axiata has already gained 29 percent. This is largely thanks to its proposed merger with Telenor’s investment in Asia. This non-cash move is seen as an attractive monetisation exercise for Axiata given that Telenor is a strong partner with good cost discipline and future-proof strategies.
Post-merger, Axiata will form one of the largest telcos in ASEAN and South Asia. The plan is for DiGi.Com (Digi) to merge with Celcom Axiata (Celcom) in Malaysia to create a Malaysian champion with an estimated 50-55 percent market share. This could lead to a 40-45 percent savings on shared network and reduce operating expenses by carving out towers into Global Towerco.
⦁ Large Cap Play: CIMB
A benign credit environment and positive outlook in the loan market has helped to create a compelling investment idea for CIMB. Loan growth for CIMB has been sustained at six percent with gradual improvement in loans growth at CIMB Niaga and stable growth in Singapore. The revival of mega infrastructure projects should give an added boost to CIMB’s corporate loan growth as we head into 4Q19.
Despite CIMB’s ROE remaining stable at 9.6 percent, its share price has been declining in the past one year. Moving forward, UOBKH thinks that potential earnings recovery from stronger loans growth at CIMB Niaga coupled with CIMB’s attractive valuation will help its share price re-rate in 2H19. It is currently attractively priced at 0.89 times price-to-book value and 9.7 times 2019 forward price-to-earnings with an attractive dividend yield of 5.2 percent. It is no wonder why CIMB is one of the large cap plays that is recommended by UOBKH as one of its 2H19 picks.