Investing: Post-GE opportunities emerging

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on June 4, 2018 - June 10, 2018.
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Investment opportunities have emerged in the local stock market following the unexpected victory of Pakatan Harapan in the 14th general election. Devan Linus Rajadurai, CEO and chief investment officer of Malayan Traders Capital, says stocks such as Star Media Group Bhd and My E.G. Services Bhd are looking attractive.

“Last year, I would not put my money in the local market as the valuations were too high. But now, we are reviewing some of these stocks and are prepared to move in,” he adds.

Devan is positive on Star Media Group, whose major shareholder is the Malaysian Chinese Association.  The company’s share price fell 6.54% to RM1 between May 8 and May 16. However, it had rebounded to RM1.14 as at May 28. The stock has a price-earnings ratio of 11.1 times and a price-to-book ratio of 1.01 times, according to Bloomberg.

Devan says the stock price took a hit because MCA is a component party of the previous Barisan Nasional government. Apparently, some investors forgot that the company’s business does not depend on the government and that its revenue and profit are not due to government contracts. “In fact, the media company could win back readers under the new government if it is provided with more freedom of speech. Some readers who gave up reading the newspaper may pick it up again,” he adds.

The competition in the media industry is also low, says Devan. “There are mainly two English newspapers that people read for general news and The Star is one of them. At the end of the day, newspapers must remain relevant to the local readers. Star Media Group is on our radar screen and we will buy into it at the right valuations,” he adds.

My E.G. Services is another company Devan is looking at. Despite being politically linked, the company has built a good track record in providing online services such as the renewal of the driving licences, road tax and foreign workers permits. “It is good at processing online payments and its valuation is starting to look attractive,” he says.

The company’s share price had plunged 70.54% to 78 sen since the general election (as at May 28). The stock has a PER of 12.26 times and P/B of 4.12 times.

“Prime Minister Tun Dr Mahathir Mohamad has been quoted as saying that he will not penalise private companies. And companies such Star Media Group and MyEG are private entities that derive their earnings from providing products and services to the masses,” says Devan.  

Selected construction companies also appear attractive. For instance, Gamuda Bhd may be impacted by the uncertainty surrounding several planned mega-infrastructure projects. But the company still has strong construction and engineering capabilities. “The company will be able to bag other projects as its core capability remains strong. It is worth buying at the right valuations,” says Devan.

Gamuda’s share price had fallen 18% to RM4.18 on May 28 from RM5.10 on May 8. The stock has a PER of 14.69 times and P/B of 1.35 times, according to Bloomberg.

 

Foreign investment to return after 100 days

The FBM KLCI has fallen 3.8% post-election, mainly due to foreign investors selling their holdings. However, Devan is positive that foreign investors will start buying into local stocks again after three to four months. He says the current decline of the index is due to the unexpected win of the Pakatan Harapan coalition, which caught foreign investors off guard.

“The result was widely unexpected, so the selling is expected. A similar example is Brexit. After the event, the pound sterling weakened and the UK stock market plunged. Foreign investors do not like changes in the markets they invested in,” says Devan.

He expects the situation to turn around after 100 days, when the new government has appointed most of its ministers and come out with more details on its policies to tackle the government debt issue. He is confident that the government will be able to address the debt issue efficiently.

“The RM1 trillion debt is not a new issue. It has existed since the previous government embarked on the Tun Razak Exchange, KL-Singapore high-speed rail and East Coast Rail Link projects. I am positive that Dr Mahathir can stop or review some of these projects and reduce the level of government debt as the projects have either not started yet or are at the beginning phase,” says Devan.

The abolishment of the Goods and Services Tax will not impact the country’s prospects going forward, he adds. This is despite the negative reports by rating agencies such as Moody’s Investors Service, which warned that the removal would be “credit negative” for Malaysia.

“The implementation of GST by the previous government was to cover up its leakages. I don’t think our country needs it to be successful. What we need is sound economic policy, transparency and less corruption and leakages. These are the things that will make our country better,” says Devan.

He adds that the announcement of the RM1 trillion government debt made by Finance Minister Lim Guan Eng is not necessarily a bad thing for the market. “It shows that the government is being more transparent than before. Some market players may see it as a positive thing. The next thing that people will look out for is how our country will tackle the issue of debt and corruption. I am positive that the new government led by Dr Mahathir will be able to do it. And when it does, foreign investments will definitely return. After all, Dr Mahathir is not a new leader whom they do not know. He had managed the country for many years in the past.”