Down by as much as 51%, blue-chip bargains to be had

This article first appeared in The Edge Financial Daily, on March 20, 2020.
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KUALA LUMPUR: While every constituent stock in the FBM KLCI has declined over the past few days of frenzied selling following the Covid-19 global meltdown, several counters have seen much steeper falls, opening a window of opportunity for investors to buy into blue chips at arguably “bargain-basement prices.”

The year-to-date (YTD) declines in most of these blue chips have surpassed the drop in the benchmark index itself which closed at 1,219.72 points yesterday, down a sharp 23.2% since Jan 1.

Genting Bhd tops the list of bargain blue chips as the conglomerate has been badly hit by the Covid-19 pandemic, by virtue of its gaming and hotel businesses. Slightly more than half, or 50.8%, of its share price has been wiped out.

At yesterday’s close of RM2.91, it was trading at a very attractive price-earnings ratio (PER) of a 5.6 times only, compared with 11.4 times at end-2019, less than three months ago.

Over the same period, its subsidiary, Genting Malaysia Bhd, has declined 39.9% to close at RM1.91.

The impact of the pandemic on travelling and tourism has also eroded the outlook for Malaysia Airports Holdings Bhd, which has lost a whopping 46.5% to RM4.07.

Covid-19 aside, the markets have also been roiled by the collapse in crude oil prices amid a price war sparked by Saudi Arabia, as Opec+ talks with Russia failed to come to an agreement.

A fiery accident at Pengerang earlier in the week did not help sentiments, further adding to the selling pressure on Petronas Chemicals Group Bhd. The counter has lost 44.1% of its value to RM4.11.

Banking stocks have also crumbled, hammered by both Covid-19 as well as the deterioration in the oil and gas industry. Indeed, four of the 10 KLCI component stocks that have lost more than 30% of their values YTD are banking stocks.

CIMB Group Holdings Bhd is the sector’s biggest loser, having fallen 39% to close at RM3.14 yesterday, at 0.55 times its net book value, followed by Public Bank Bhd (down 34.9%), Hong Leong Financial Group Bhd (32.7%) and Hong Leong Bank Bhd (30.8%).

Other than Public Bank which is trading at 1.13 times price-to-book value, the others are trading at below book value.

In a note yesterday, AmInvestment Bank research analyst Kelvin Ong said there could be further downside risk to the net interest income and net interest margin (NIM) of banks, should the central bank institute another 25-basis point (bps) cut to the overnight policy rate in May.

Another rate cut would hurt banks’ earnings by between 1% and 2%, he said, while most banks would see their NIMs impacted by 2bps to 4bps.

Another counter that has seen more than a third of its share price vanish is Press Metal Aluminium Holdings Bhd, which has tumbled 38.7% to RM2.85.

An analyst noted that Press Metal’s plants in Peninsular Malaysia are slated to close during the partial lockdown period, although its smelting plant in Samalaju, Sarawak has been given the green light to continue operations.

The Federation of Malaysian Manufacturers (FMM) had previously said that manufacturers with kiln and smelting facilities in the metal industry may face hefty costs as these manufacturers are highly sensitive to sudden shutdowns and restarts. FMM said the movement restriction order issued last Monday was “too drastic”.