This article first appeared in Capital, The Edge Malaysia Weekly on December 25, 2017 - December 31, 2017

WHILE the FBM KLCI lagged behind regional indices, despite expectations that it would make a comeback in 2017, research outfit Asia Analytica Sdn Bhd, or better known as InsiderAsia, saw its top 10 stock picks outperform the benchmark index by a wide margin.

The stocks saw an average return of 40.25% compared with the FBM KLCI’s single-digit gain of 6.78% as at Dec 15.

“Overall, the stocks have performed pretty well — definitely better than the FBM KLCI. Our stock selection is always based on underlying fundamentals and value,” says InsiderAsia’s head of research, Linda Koh.

Kerjaya Prospek Group Bhd topped the list with a total gain of 88.6%. As at Dec 15, the counter had surged to RM3.97 from RM2.13 at the start of the year.

Formerly known as Fututech Bhd, Kerjaya became a successful turnaround story after its executive chairman and co-founder Datuk Tee Eng Ho and his family injected their private construction outfits — Kerjaya Prospek (M) Sdn Bhd and Permatang Bakti Sdn Bhd — into the loss-making company for RM458 million in 2015.

The group secured a string of contracts in 2017, the latest being a RM245.35 million job for the upmarket Triuni Condominium located within The Sanctuary development in Batu Uban, Penang, bringing its outstanding order book to RM3.2 billion as at the third quarter of 2017.

In a note, InsiderAsia says it liked Kerjaya because the company has high earnings visibility, is a pure construction play and has strong fundamentals with key strengths in high operational efficiency and superior margins.

Kerjaya posted a record profit of RM34.41 million in its third financial quarter ended Sept 30, up 35% from RM25.49 million a year ago, while revenue rose 21% year on year to RM229.94 million.

For the first nine months ended Sept 30, its net profit rose 30% from the previous corresponding period to RM96.16 million. Its cumulative revenue jumped 23% to RM703.36 million.

Year to date, the group has announced total dividends per share of 5.5 sen, which translates into a dividend yield of 1.4% based on its closing price of RM3.97 on Dec 15.

Second among the research house’s top picks was insulation materials manufacturer Superlon Holdings Bhd, which saw a gain of 79.9%, including dividends, for the year to Dec 15.

Superlon’s sales are mainly denominated in US dollars as the export-oriented business caters mainly for clients in India and Vietnam.

The counter hit an all-time high of RM3.68 on May 24, prior to a one-to-two share split in June. It continued climbing after the share split to close at RM2.90 on Aug 25 but plunged after the announcement of a 41% year-on-year drop in its net profit for the first quarter ended July 31 (1QFY2018) amid lower sales and higher cost of materials in its manufacturing division.

This continued into 2QFY2018 as high raw material costs continued to hurt Superlon’s earnings, which dropped 28% year on year to RM3.64 million.

Notwithstanding the weaker performance, Superlon paid out total dividends of 5.75 sen per share during the calendar year, which translated into a yield of 2.7%.

The journey ahead for Superlon could be better as the company has received the required certification to penetrate the US market. It is currently in the midst of identifying suitable distributors.

One of InsiderAsia’s usual picks, Ajinomoto, made an appearance again among the top 10 this year, taking third spot with a total gain of 71.4%. The group is the leader in the monosodium glutamate market in Malaysia, commanding more than 80% of it.

The research house likes the company because it is a defensive stock that offers decent yields. “Demand for its range of products is comparatively resilient. It is a household name with a dominant market position and expanding geographical footprint,” writes InsiderAsia in a note.

Ajinomoto announced its first and final dividend of 42 sen per share, along with a special one-off dividend of RM1.13 per share, as the group was awarded RM165.99 million as compensation for the compulsory acquisition of its plot of land in Jalan Kuchai Lama, Kuala Lumpur, for the MRT2 project.

This brings its total dividend payout to RM1.55 per share, 355% higher than the 34 sen paid in 2016. This translates into a yield of 7.5% based on the company’s closing price of RM20.70 on Dec 15.

Ajinomoto touched an all-time high of RM26.34 on Aug 9, following the bumper dividend announcement in July.

Another stock that saw double-digit gains was Willowglen MSC Bhd. The company is involved in the provision of supervisory control and data acquisition (SCADA) solutions, which is a computerised system used to monitor and control industrial processes and facilities.

InsiderAsia points out that the company has a large cash pile, which stood at RM28.65 million as at the third quarter ended Sept 30, and no long-term borrowings.

Willowglen paid out a dividend of two sen per share during the year, which translated into a yield of 1.8% based on its closing price of RM1.14 as at Dec 15.

The research house says the company’s future growth will be supported by its expansion into new industries as it is looking to venture into power substation, hospital, highway and renewable energy monitoring in Malaysia.

Willowglen is also eyeing contracts from Tenaga Nasional Bhd as it has qualified as a registered vendor. In the earlier part of 2017, the company secured a RM7.82 million contract from TNB — the country’s largest SCADA user.

“Despite having a promising outlook, Willowglen is under-researched and under-appreciated,” writes InsiderAsia.

Other companies on the top 10 list that saw double-digit gains year to date are Panasonic Manufacturing Malaysia Bhd (up 35.7%), Mikro MSC Bhd (up 33.8%) and Lii Hen Industries Bhd (up 29.8%).

Meanwhile, plastic packaging product manufacturer Thong Guan Industries Bhd and wooden picture frame manufacturer Classic Scenic Bhd saw mid to single-digit gains of 6.2% and 6.1% respectively.

The only counter among the top 10 that fell was edible oils manufacturer and distributor Yee Lee Corp Bhd, which had slipped 5.1% to RM2.15 as at Dec 15 from RM2.31 at the start of the year.

For the cumulative three quarters ended Sept 30, the group saw a 20% year-on-year decline in its net profit to RM25.96 million despite an 8% increase in revenue to RM824.49 million. The decline in profit was attributed to lower contributions from the company’s main divisions, namely manufacturing, trading and plantation.

Yee Lee announced a dividend of 4.5 sen per share in 2017, which translated into a yield of 2.1%.

Looking ahead, InsiderAsia says it will continue to pick stocks based on their underlying fundamentals and value. “Our stock picks for 2018 will be based on the same strategy, which has done us well over the past three years. We expect the global economy and financial markets to be healthy in 2018,” says Koh.

She adds that InsiderAsia will discuss in greater detail its outlook and stock picks for 2018 in an upcoming issue of The State of the Economy. 

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