Cover Story: Eight safer bets

This article first appeared in The Edge Malaysia Weekly, on February 4, 2019 - February 10, 2019.
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APART from a number of potential dark horses that could be worth backing in the Year of The Pig, The Edge looked at a handful of top picks that are less exposed to domestic political uncertainties and more sheltered from the US-China trade dispute.

One of the most popular is BIMB Holdings Bhd. All nine analysts tracking the company have a “buy” call on the counter, with an average target price (TP) of RM4.93 — indicating a potential return of 31.5%.

Hong Leong Investment Bank analyst Chan Jit Hoong says the outlook for BIMB is bright as asset quality is seen to be steady with no net financing margin (NFM) pressure in the offing.

“Besides, its takaful unit is showing robust growth, thanks to a new bancatakaful tie-up.   These prompted us to raise our 2018 to 2020 earnings by 4% to 9%,” he says in a report. His TP for the counter is RM5.

MBM Resources Bhd is also on the list as most analysts believe that sentiment remains strong in the automotive industry. Affin Hwang Investment Bank analyst Brian Yeoh says the automotive player will continue to benefit from second national car maker, Perodua’s expanding domestic market share on the back of newly launched Perodua Aruz, which is seen as a growth catalyst this year.

All nine analysts covering the company have called a “buy”, and the average TP of RM3.38 points to a potential return of 32%.

Another popular pick is AirAsia Group Bhd , which is one of the cheapest stocks on Bursa Malaysia at the moment with a trailing price-earnings ratio (PER) of 3.56 times. Of 20 analysts covering the stock, 12 have called a “buy”.  The consensus average TP of RM3.40 suggests an upside potential of 11.8%. The stock also offers a hedge against oil price movements as the airline benefits from lower Brent crude prices.

For those who believe the oil and gas sector will continue to recover, Dialog Group Bhd is among the preferred stocks.  One of the few outperformers last year, its share price jumped 18.3% to close at RM3 last Thursday.  Eight analysts have a “buy”, while seven recommend  a “hold” on the counter. The average TP of RM3.54 indicates a potential 18% gain. Given its exposure in the upstream, midstream and downstream segments of the industry, Dialog’s portfolio is diversified enough to mitigate earnings volatility.

Infrastructure development in Sarawak is another investment theme for the year. Cahya Mata Sarawak — the sole supplier of cement in the state as well as a major building materials player — is expected to be a beneficiary. It is Maybank IB Research’s top pick for the construction sector with a target price of RM4.10, for an upside potential of 33.6%.

Given that a number of companies are trading at cheap valuations, the market is keeping an eye out for potential merger and acquisition targets. Market talk has it that a potential privatisation target is Astro Malaysia Holdings Bhd. In a CIMB Equity research report, analyst Kamarul Anwar highlights that “regulatory intervention” to clamp down on media piracy could be positive for Astro. The Malaysian Communications and Multimedia Commission is organising a workshop on piracy to seek solutions from industry players on the proliferation of Android boxes. The popularity of these online streaming devices has undermined Astro’s offerings.

Defensive counters to consider include Formosa Prosonic Industries Bhd and Uchi Technologies Bhd. Both have strong balance sheets, consistent positive cash flow and pay good dividends. Despite the volatile market last year, FPI’s share price edged higher by 1.7% to close at RM1.83 last Thursday, while Uchi Tech gained 2.1% to close at RM2.57.

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