This article first appeared in The Edge Malaysia Weekly on October 25, 2021 - October 31, 2021

Cahya Mata Sarawak Bhd (CMS), a major private sector player in Sarawak with interests in construction, road maintenance and cement manufacturing, is a top pick among analysts to be a beneficiary of Budget 2022.

“Companies with broad exposure to public development works within East Malaysia like CMS could continue to benefit from sustained project rollouts there,” RHB Research says in its Budget 2022 Market Strategy report.

MIDF Investment Bank head of research Imran Yassin Md Yusof concurs. “There is also the potential for higher allocation to develop Sabah and Sarawak, where [one of] the obvious beneficiaries will be CMS,” he says in an emailed response to The Edge.

TA Securities, in its 2022 Budget Preview, says that development expenditure may be focused on East Malaysia, with the Sarawak state election likely to be called by next April.

Year to date, CMS’ shares have declined 31%, closing at RM1.44 last Thursday. That translates to a market capitalisation of RM1.5 billion. CMS is currently trading at a historical price earnings ratio of 12.3 times and below its book value at 0.53 times.

The continuity of major infrastructure projects such as the MRT3 will support the construction sector’s growth next year, says MIDF’s Imran. This could bode well for Gamuda Bhd.

Gamuda, through its joint venture with MMC Corp Bhd, was the project delivery partner for the Sungai Buloh-Kajang Line, or MRT1, and the turnkey contractor for the Sungai Buloh-Serdang-Putrajaya Line (SSP, or MRT2).

It also has a property development arm, where international projects make up two thirds of its sales. Gamuda deepened its presence in Vietnam’s property development scene with the recent acquisition of a 13.8-acre plot of vacant residential land in Binh Duong New City for US$53.88 million (RM228.5 million).

PublicInvest has an “outperform” call on Gamuda with a target price of RM3.68. Year to date, shares in the company have declined by 17% to close at RM3.22 last Thursday, for a market capitalisation of RM8.1 billion. At that price, the stock is currently trading at a historical price earnings of 13.9 times and below its book value at 0.88 times.

TA Securities, which has an “overweight” stance on the technology sector, says it would welcome grants and incentives in Budget 2022 to spur investments in the electrical and electronics industry. These would facilitate the companies’ expansion plans and enable them to enjoy lower taxes.

One of TA’s top picks for the sector is outsourced semiconductor assembly and test (OSAT) company Inari Amertron Bhd.

Year to date, Inari’s share price has risen 45% to close at RM3.89 last Thursday, valuing it at RM14.3 billion. Its stock is trading at a historical price earnings of 36 times and has an indicated gross dividend yield of 2.3%.

In an Oct 20 note, PublicInvest Research says that it is maintaining its “outperform” call on the stock, with a target price of RM4.75, as it is positive on Inari’s recent foray into China and the ongoing 5G network rollout in cities across the globe.

OSAT player Unisem (M) Bhd is another top pick for analysts as it is expected to be a beneficiary of Budget 2022’s incentives for the technology sector.

“Indirect beneficiaries [of Budget 2022] could be the tech and telco sectors given the push to accelerate technology adoption and the communication infrastructure needed as highlighted in the 12th Malaysia Plan … we have a ‘buy’ call on Unisem with a target price of RM5,” says MIDF’s Imran.

Year to date, Unisem’s share price has increased by 35% to close at RM4.14 last Thursday, for a market capitalisation of RM6.6 billion. At this price, the stock is trading at a historical price earnings of 30 times, and has an indicated gross dividend yield of 0.7%.

In an Oct 7 note, CGS-CIMB Research reiterated its “add” call on Unisem, with a target price of RM5.25. It expects Unisem’s utilisation rate in 4Q2021 to improve q-o-q as more employees return from mandatory quarantine leave due to Covid-19. The brokerage adds that stronger contribution from Unisem’s Chengdu operations could partially offset the near-term impact of the temporary shutdown at its Ipoh plant due to a spike in Covid-19 cases.

UOB Kay Hian says it expects Budget 2022 to be modestly positive for the telecommunications sector, and expects some digitisation allowances for corporates and small to medium enterprises, which would provide a monetisation opportunity for telcos via their enterprise digitisation solutions.

The brokerage’s top pick for the sector is Telekom Malaysia Bhd. Year to date, Telekom’s share price has increased by 11% to close at RM5.85 last Thursday, giving it a market capitalisation of RM22.1 billion. Its stock is currently trading at a historical price earnings of 19 times, with an indicated gross dividend yield of 2.3%.

In an Aug 30 note on Telekom, MaybankIB Research says the overall outlook for Telekom remains positive. The company will potentially benefit from the work-from-home and 5G deployment themes, as well as its own ongoing cost optimisation efforts.

TA Securities says one of the likely measures in Budget 2022 will be the beefing up of Malaysia’s digital connectivity and infrastructure according to the national digital infrastructure plan, Jalinan Digital Negara (Jendela).

TA reiterated its “overweight” call on the telecommunications sector, with Maxis Bhd among its top buys with a target price of RM5.05.

Year to date, Maxis’ share price has declined by 2% to close at RM4.80 last Thursday, giving it a market capitalisation of RM37.6 billion. The stock is currently trading at a historical price earnings of 26 times and has an indicated gross dividend yield of 3.3%.

Axiata Group Bhd, which owns mobile operators in several countries including Celcom in Malaysia, also stands to benefit from the government’s commitment to digital connectivity, says TA Securities. The brokerage has a “buy” call on Axiata with a target price of RM4.60.

In an Oct 11 note, MIDF Research maintained its “buy” call on Axiata with a target price of RM4.62, based on expectations of stable earnings growth across all of its operating companies, supported by the expansion of revenue and earnings before interest, taxes, depreciation and amortisation.

Year to date, Axiata’s share price has climbed 8% to close at RM3.96 last Thursday, giving the company a market value of RM36.3 billion. Axiata’s stock is currently trading at a historical price earnings multiple of 85 times and has an indicated gross dividend yield of 2.2%.

RHB Research has an “overweight” call on the gaming sector, with Genting Malaysia Bhd among its top picks. It says an increase in casino duties in Budget 2022 is unlikely as the sector is still recovering from a steep tax hike imposed three years ago.

In an Oct 1 note, MaybankIB Research says the next catalyst for Genting Malaysia is the opening of the much-delayed RM3 billion Genting SkyWorlds theme park at Resorts World Genting (RWG).

“We maintain our view that it will open in December to coincide with the school holidays. Going forward, we are confident that it will attract both gaming and non-gaming visitors to RWG,” says MaybankIB. It has a “buy” call on the company, with a target price of RM3.40.

Year to date, Genting Malaysia’s share price has appreciated by 21% to close at RM3.17 last Thursday, for a market capitalisation of RM17.9 billion.

TA Securities anticipates that Budget 2022 will help low- to middle-income earners as well as first-time homeowners with friendlier measures for property developers and foreign buyers to spur market activities.

It has an “overweight” call on the property sector and Sunway is one of its top stock picks. Notable Sunway developments include Sunway City Ipoh, Sunway Damansara and Sunway Velocity.

In a Sept 14 note, Hong ­Leong Investment Bank says that Sunway remains its top pick as, with its wide-ranging business exposure, the group is a proxy to the eventual economic recovery. The brokerage has a “buy” call on Sunway, with a target price of RM2.58.

Year to date, Sunway’s share price has appreciated by 14% to close at RM1.81 last Thursday, translating to a market capitalisation of RM8.8 billion. Its stock is currently trading at a historical price earnings of 23 times and has an indicated gross dividend yield of 1.3%.

RHB Research does not anticipate any tax hikes in Budget 2022 for breweries and tobacco players, in view of the punitive tax rates and prevalence of illicit trade that could render higher taxes counter-productive.

This could benefit British American Tobacco (M) Bhd (BAT), which carries cigarette brands such as Dunhill and Pall Mall.

Year to date, BAT’s share price has appreciated 7% to close at RM14.36 last Thursday, valuing it at RM4.1 billion. The stock is currently trading at historical price earnings multiple of 14 times, with an indicated gross dividend yield of 6.5%.

In an Oct 13 note, UOB Kay Hian maintains its “buy” call on BAT, with a target price of RM17.20, as its prospects appear promising — with nicotine vaping regulation expected in 2022, as well as its traditional cigarette sales recovering well from a five-year lull, aided by restrictive measures on cigarette transhipment. UOB KayHian added that BAT offers compelling dividend yields of 7.5% to 7.7%.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.