Cover Story:How they performed

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At the beginning of the year, we selected 20 stocks to watch. Below, we look at their prospects for the year ahead. Astro All Asia Networks plc The stock failed to excite, gaining only 1.4% year-to-date to RM2.24 last Thursday. Interest in Astro continues to be lacklustre despite its exit last year from a cash-draining venture in Indonesia, where it wrote off some RM915 million in investment over the last two years alone. Astro’s loss-making pay-TV venture in India still requires investment. Meanwhile, it is also trying to venture into the Middle East through joint ventures.These overseas ventures will continue to consume the bulk of Astro’s cash flow and affect dividend payments. And, with the local pay-TV business maturing, most fund managers say they don’t see an immediate catalyst in Astro, at least for the time being. The stock’s dividend yield of about 4.2% is deemed as moderate. Analysts’ recommendation on the stock has been mixed, with an average target price of about RM2.37.

Axiata Group Bhd (formerly TM International Bhd)Things have been working against the telco so far this year. Its share price fell, bogged down by concerns over ballooning debts after its acquisition in India and repayment to Telekom Malaysia Bhd.Its cash call to raise RM5.25 billion added fuel to the downtrend. The stock tumbled to a record low of RM1.47 last month before it bounced back to RM1.85 last Thursday, down 25% year-to-date. After the sharp fall in its share price, some stockbrokers, including Credit Suisse and Morgan Stanley, believe the stock is worth a second look due to the undemanding valuation. But, concerns over growing capital expenditure linger as Axiata rolls out 3G services in markets where it has a presence.

Bintulu Port Holdings BhdThe stock’s price movement has been flat. It closed at RM5.70 on Dec 31, 2008, and ended last Thursday at the same price.The company’s results remain strong, thanks to the steady export of liquefied natural gas through its port in Bintulu, Sarawak. Its net profit and revenue for FY2008 ended Dec 31 increased 11% and 7.6%, respectively, to RM150.6 million and RM448.8 million.The stock remains largely a dividend play. At its current price, it is trading at an estimated dividend yield of between 6.8% and 7.2% for FY2009, according to Kenanga Research and Standard & Poor’s. Nevertheless, analysts say there could be a potential upside with the possibility of the company making a capital repayment, given its net cash holding of RM1.25 a share. Analysts’ recommendation on the stock has been mostly positive, with a target price of more than RM6.50 a share.

Hong Leong Bank BhdIt gained a moderate 3.9% year-to-date, closing last Thursday at RM5.30. Interest in the banking sector remains lukewarm in general, amid concerns about slower lending growth and a rise in non-performing loans. This may cap the performance of the stock, analysts say.Citigroup, in a report, expects Hong Leong Bank’s net interest margin to decline in a falling interest rate environment, given that more than 70% of its loans are based on variable rates while 21% of its deposits are in fixed rate. Analysts’ recommendations on the stock have slanted towards “hold”, “neutral” or “sell”, with an average target price of RM5.49. At its current price, Hong Leong is trading at forward price earnings of 9.2 times and 1.5 times price-to-book, which puts it in the mid rank of local banks in terms of valuations.

IJM Corp BhdAfter experiencing a heavy selldown last year, the has stock gained a whopping 61.4% since Dec 31, 2008, to close last Thursday at RM4.52, boosted by the government’s renewed effort to pump-prime the domestic economy as well as some recovery in crude palm oil prices.Investors like IJM for its strong management and diversified portfolio of businesses. Apart from the core construction business, IJM has interests in property development, plantation, infrastructure concession and building materials. Analysts’ recommendations on IJM are largely positive, with an average target price of RM4.34. While the stock has seen impressive gains recently, it is still trading below its book value of RM5.20 per share.  IJM Land BhdLess than four months after IJM Corp injected its property assets into RB land to form IJM Land Bhd, the global stock market fell off the cliff with the collapse of financial institutions in the US last August. The company barely had a chance to prove itself anew and instead saw its share price tumble to 56 sen on Oct 28, 2008, which was only about 42% of its book value of RM1.34.But its rebound was swift. The stock recovered to close at 65 sen on Dec 31, 2008, and climbed another 42% to 92 sen last Thursday.Analysts are largely positive on the stock, citing the good development potential of its strategic land banks and a strong balance sheet.

IOI Corp BhdThe plantation giant has gained 18% since Dec 31, 2008, to close at RM4.20 last Thursday. The stock has benefited from the recent surge in crude palm oil prices, sparked by renewed interest in commodities amid fear of the further weakening of the US dollar due to a series of US government measures perceived as “printing money”. With a well-managed plantation operation, IOI remains the priciest plantation stock with a rich forward price earnings ratio (PER) of 18 times, compared with the sector average PER of low to mid-teens. For that, analysts’ recommendation on the stock has been mostly “fully valued” or “neutral”, suggesting that investors take profit or switch to cheaper peers.

KLCC Property Holdings BhdThe softening of property sales and rental rates failed to dent interest in KLCC, which owns properties such as the Petronas Twin Towers and landbank at the choicest location in town. The stock gained 12.9% year-to-date to RM3.16 last Thursday, as investors saw value emerging in the property investment group.KLCC is charging ahead with the development of new projects adjacent to the KLCC. Its rationale is to continue the development while the cost of construction is low to capitalise on the recovery in the market in the next few years. Analysts are mostly positive on the stock with “buy” or “market perform” recommendations, with a target price of RM3.48.

KPJ Healthcare BhdThe stock has gained 12.5% since Dec 31, 2008, to finish at RM2.87 last Thursday. The company is expected to generate recurring earnings growth, regardless of how the economy performs. In good times or bad, there is still demand for healthcare services. Standard & Poor’s expects KPJ to continue paying generous dividends of about 20 sen a share (payout ratio of 49%) for the current financial year ending Dec 31, 2009. KPJ paid a dividend of 38 sen a share for FY2008 (a payout ratio of 79%).KPJ continues to unlock value by disposing of its hospital buildings to an affiliated REIT in return for shares. This bodes well for the company as it can focus on expanding its healthcare services business, which generates higher returns, rather than clinging on to property investment that ties up its capital.Malaysian Bulk Carriers BhdThe shipping stock made a strong comeback with its share price climbing 38.1% since Dec 31, 2008, to RM3.30 last Thursday.During this period, the Baltic Dry Index (BDI), which reflects international shipping rates, rose from 773 points in the beginning of the year to 1,478 points currently.However, after the rally in the last three months, analysts have turned cautious on the stock, with largely negative “sell” and “underperform” calls, and an average target price of RM2.31. The BDI has recently shown some signs of retreat, falling from a high of 2,298 points on March 10 to around 1,500 points currently, over concerns of a prolonged slowdown in international trade.

Muhibbah Engineering (M) BhdThe company, which specialises in marine engineering and construction, has seen its share price underperforming its peers in the construction and oil and gas sectors since the beginning of the year, gaining only 5.1% to RM1.04.Nevertheless, this makes the stock’s valuation more attractive, with almost  all the analysts polled on Bloomberg calling a “buy” or “outperform” on the stock, with an average target price of RM1.59.Analysts continue to like Mu­hibbah, given its huge outstanding order book of RM4.2 billion, which could keep it  busy for the next three years. Also, as prices of raw materials such as steel decline, construction margins tend to improve.

SapuraCrest Petroleum BhdSapuraCrest Petroleum’s share price rebounded strongly from a low of 61.5 sen last month to 87.5 sen, up about 42%, after it bagged an RM825 million job to provide offshore installation of pipes and facilities for the Gemusut field. The job helped boost the company’s order book to RM7.7 billion. The award of the contract is seen as an indicator that oil majors, including Petroleum Nasional Bhd, are committed to continuing their capital expenditure although oil prices have softened. SapuraCrest is attractive mainly because of its ability to undertake jobs in deep water, which is the trend going forward, as oil wells onshore and in shallow waters dry up. Tanjong plc Despite its defensive nature that offer shareholders a good shelter in the current volatile market, Tanjong plc is not attracting much buying interest. A clean balance sheet, stable dividend payout and steady earnings stream have made it one of the widely recommended counters on Bursa Malaysia. Year-to-date, the stock has gained 6%, hovering between RM13.20 and RM14.60. Tanjong’s management is said to be still keen to spin off the group’s power or gaming business. Analysts believe that will be a potential catalyst to drive its share price higher. OSK Research expects cash proceeds could be returned to shareholders should that happen.

Top GloveThis is certainly one stock that you would wish you had bought. Despite the uncertainty in the world economy, Top Glove’s share price has soared 50% since the beginning of the year, hitting a 52-week high of RM5.35 last Thursday. The buying interest is mainly driven by the expectation of profit margin recovery due to lower input costs, strengthening US dollar (which helps to boost its earnings) and resilient demand for its products. Analysts polled by Bloomberg were positive on the counter after the group announced it had achieved a higher pre-tax profit of RM70.15 million for 1H of the financial year ended Feb 28, compared with RM58.8 million a year ago.

YTL Corp Bhd The share price rally sparked by the group’s acquisition of a real-estate investment trust (REIT) in Singapore at end-2008 has subsided. Its share price has hardly moved, only inching up 0.71% year-to-date despite the rally in recent weeks.This is probably because of the absence of a new catalyst. Also, YTL isn’t that appealing in terms of dividend yield, which is barely 1.4% of its current share price. However, there is speculation that the group may reshuffle its local property assets later, given its intention to expand its REITs in Singapore. This is likely to bring some excitement to the stock.

Nestlé BhdImagine the number of Malaysians having a cup of Milo or Nescafe every morning, or a plate of fried Maggi noodles every night. Then imagine the bottom line of Nestlé Bhd, the company making these products. Note that Nestlé’s market is not confined to Malaysia; it also exports to regional markets. With such solid fundamentals, Nestlé is a sought-after stock, especially in times of uncertainty. It has been trading at an average of over 20 times price-earnings for the last five years, justified by high ROEs and dividend yield. However, when markets move, more aggressive investors may prefer to load up on stocks with promise of capital returns instead of safe dividend-paying stocks like Nestlé.  

PPB Group BhdThe stock has held steady despite the volatility in other plantation counters, by virtue of its 18.3% ownership of Singapore-listed Wilmar International Ltd. For local funds without the mandate to invest overseas, PPB Group is the alternative to owning a piece of investors’ darling, Wilmar International. Indeed, the Employees Provident Fund is now PPB Group’s second-largest shareholder, holding 9.57% of the company. Wilmar’s full-year contribution to the group’s profit before tax in FY2008 rose 296% to RM895 million from RM226 million in FY2007, when it only started contributing in May. PPB outperformed the KLCI but underperformed the KL Plantation Index. The three analysts polled recently by Bloomberg have “buy”, “fully valued” and “sell” recommendations.    

QL Resources BhdThe company’s business may be as plain as vanilla, but that has held it in good stead, with its share price rising 4.7% despite less than sterling results in 3Q ended Jan 31, 2009. Volatile commodity prices took a toll on QL Resources’ plantations and integrated farming divisions while high prices of surimi led to lower demand. Net profit declined 5.7% q-o-q. Nevertheless, for the cumulative period, net profit grew 18.1%. Analysts continue to like QL Resources given its resilient business model, sound management and steady growth.  Of the seven analysts covering the stock, six called a “buy”.  The average target price is RM2.99.

Quill Capita REITQuill Capital REIT is the second-worst performer among the 20 stocks picked, declining 8.7% year-to-date.The REIT’s assets consist of office buildings and some retail property in the Klang Valley and Penang. The main risk for Quill is occupancy risk — up to 25% of the tenancy of its net lettable area will be up for renewal soon. While renewing the tenancies is not an issue, negotiating higher rates will be tough in the current market environment. Hence, rental growth is expected to be flat. Quill’s yield of about 9% is also among the lowest in the industry. Of the three analysts covering Quill, two have “buy” calls while one has a “sell”. The average target price is RM1.08.

Resorts World BhdThe stock has rebounded from its low of 1.84 on March 16 as value emerged and investor interest returned to the gaming counter. According to analysts, Resorts World is now trading at valuations last seen during the Asian financial crisis in 1998. Furthermore, investors believe its casino operations should be relatively well-protected from the economic downturn. Having said that, concerns over another related party transaction lingers, but analysts take the view that management will exercise caution in evaluating such transactions in the future. Among the analysts covering Resorts World, 18 have “buy” calls, four have “hold” while three call a “sell”.

This article appeared in the Cover Story page,The Edge Malaysia, Issue 750, April 13-19, 2009.