This article first appeared in The Edge Financial Daily, on October 13, 2015.
KUALA LUMPUR: CIMB Research has picked RHB Capital Bhd (RHBCap), Only World Group Holdings Bhd (OWG), MY EG Services Bhd (MyEG), GHL Systems Bhd and Hovid Bhd with the highest potential share price upside for a three- to five-year investment horizon.
The research outfit projects that the five stocks have an upside that ranges from 114% to as high as 545.8%.
In a strategy note last Friday, CIMB Investment Bank Bhd head of equity research Terence Wong said the purpose of his report was to identify stocks that investors can buy and hold for long periods of time without worrying too much, while at the same time enjoying significant price appreciation.
Wong is of the view that despite its large market cap and position within the mature and highly competitive banking sector, RHBCap (fundamental: 1.4; valuation: 1.65) is currently trading on low valuations, with end-FY16 (ending Dec 31, 2016) forward book value per share (P/BV) of 0.7 times and FY16 forward price-earnings (P/E) of seven times.
“We are excited about its long-term prospects (given its drive for regional expansion, backed by a strong management team and the Employees’ Provident Fund as its shareholder). RHBCap is ranked fifth highest on our list in terms of upside to long-term target price. The other four stocks ahead of it are all smaller caps, and OWG is in pole position,” he said.
Wong said OWG is a unique combination of captive food and beverage and a tourism play on Genting Highlands and Penang.
“If the company executes well, the upside to its share price, according to our calculations, is massive over the next three to five years,” he said.
As for MyEG (fundamental: 2.3; valuation: 1.1), Wong said although the stock has appreciated many fold over the past three years, he believes that the company’s outlook remains bright and it has several aces up its sleeve.
Wong likes GHL Systems (fundamental: 1.2; valuation: 0.4) as its new business model of acquiring merchants and sharing fees charged for credit card usage could potentially transform the company tremendously in the coming years.
Meanwhile, Wong said Gamuda scored highest in its long-term stock-picking matrix because of its proven capability to better leverage its strength and expertise into executing larger-scale projects over longer periods of time.
“Assuming that the execution of the Penang transport master plan kicks off with the RM5.3 billion high-priority light rail transit project and is completed within the next five to six years, this could translate into new potential reclaimed land bank of 800 acres (323.7ha) based on RM150 per sq ft break-even reclamation cost.
“Imputing this component based on the group’s (Gamuda’s) 60% stake in the project delivery partner joint venture would raise the target price further to RM7.20 based on a similar discount to revised net asset value,” he added.
CIMB Research’s end-2018 target price for RHBCap is RM13.12, which is more than double yesterday’s closing price of RM6.22. “We think that the target price is reasonable, as it only implies a FY19 price-earnings ratio of 10 times and end-FY18 price to book value of 1.2 times,” said Wong. The end-2020 target price is set at RM15.28.
OWG is given a 2018 target price of RM6.67, and RM14.66 for 2020, while CIMB IB has a 2018 target price on MyEG at RM6.65 and 2020 target price of RM9.65.
CIMB Research’s 2018 target price on GHL is RM2.40, more than double the closing price of RM1.13 yesterday. The stock’s 2020 target price is set at RM3.65.
In the healthcare field, CIMB Research plucked drug maker Hovid to have the best long-term earnings upside, with a major assumption that the clinical trials for its Tocovid Suprabio vitamin will enjoy some positive progress. The stock’s 2018 target price is RM1, while 2020’s target price is RM1.30.