The Edge Best Call Awards 2016: InsiderAsia stocks that performed in 2016


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This article first appeared in Capital, The Edge Malaysia Weekly, on December 19 - 25, 2016.

 

THE stock market has been nothing short of challenging for investors this year as Malaysia continued to battle with a depreciating currency amid unimpressive crude oil prices. And externally, there was the unexpected Brexit vote and the shocking Donald Trump victory in the US presidential election.

Despite the chaos that beset stock markets globally, research outfit Asia Analytica Sdn Bhd, better known as InsiderAsia, featured five counters that put up a stellar performance during the year.

“Going into 2016, we had expected things to be very difficult. We predicted earnings for the broader market would contract. Our strategy was very clear, that is to find companies that would buck the trend,” says head of research Linda Koh.

The top performers, based on total gains, were Ajinomoto (M) Bhd, Classic Scenic Bhd, Lii Hen Industries Bhd and Panasonic Manufacturing (M) Bhd. Since being featured by InsiderAsia, these stocks have appreciated between 72.5% and 38% each during the Jan 21 to Dec 9 period.

Topping the list was Ajinomoto, which saw a total gain of 72.5%. The stock surged from RM8.09 on Jan 21 to RM13.62 on Dec 9. Bloomberg data shows only one other research house tracking the stock but coverage started much later.

Ajinomoto, a household name, commands 90% market share of monosodium glutamate consumption in Malaysia. It also manufactures industrial seasonings and retail flavour seasonings such as soups, sweeteners and pepper. It exports to the Middle East, accounting for slightly more than 30% of its revenue.

The company’s revenue for the nine months ended Sept 30, 2016, rose 4.5% compared with a year ago, while net profit increased 10%.

Ajinomoto, which has a March 31 financial year end, paid out dividends totalling 34 sen this year, 14 sen higher than a year earlier. Based on the share price of RM13.62 on Dec 9, the dividend yield stood at 2.5%.

Another interesting stock that has performed well this year is Classic Scenic. The unassuming company, which is one of the world’s largest manufacturers and exporters of high-end wooden picture frame mouldings, has seen its share price appreciate 46.7% since it was featured by InsiderAsia. If dividends were included into the mix, total gains amounted to 56.6%.

Classic Scenic supplies to several prominent clients, including US-based Michaels Stores Inc and Larson-Juhl Inc.

“The former is the largest retailer of art and craft materials in North America while the latter was acquired by Warren Buffett’s Berkshire Hathaway in 2002 for US$223 million,” notes the research house in a report.

Given that its clients are in the US, Classic Scenic has benefited from the recovery in consumer sentiment there. The stronger US dollar also helped lift its earnings during the year.

Classic Scenic is trading at a price-earnings ratio (PER) of 13.69 times, lower than the 15.51 times when InsiderAsia recommended the stock. However, its dividends remain attractive — it has declared a payout of six sen per share for the cumulative nine months ended Sept 30. Last year, it declared dividends totalling 10 sen per share, giving shareholders an attractive yield of 8.3%, based on the share price of RM1.21 on the last trading day of 2015.

Investors who had placed their money in Panasonic when InsiderAsia first featured the stock would have made a total gain of 39.6%, based on its share price appreciation and dividends.

While the company may seem like a boring bricks-and-mortar business, InsiderAsia notes that its dividend payout ratio has ranged from 82% to over 100% since the financial year ended March 31, 2011.

In FY2016, Panasonic distributed dividends totalling RM1.39 per share, giving a yield of 4.7%, based on its share price of RM29.68 on March 31. As at Sept 30, the company had net cash of RM568 million.

Lii Hen made it to the list again this year as the stock has continued to impress with a total gain of 37.6% since InsiderAsia featured it on Jan 21. Lii Hen is one of the largest manufacturers of home and office furniture and boasts a 30-year track record.

Like Classic Scenic, Lii Hen has benefited from the recovery in consumer sentiment in the US and the stronger US dollar, given that the country is its main market. Over 90% of its export revenue comes from the US.

Despite concerns that exporters like Lii Hen would see earnings falter this year, given the high base effect on earnings from the previous year, the company’s net profit for the nine months ended Sept 30 grew 40% from the previous year.

Meanwhile, Superlon Holdings Bhd did well too. It has gained 18%, including dividends, since InsiderAsia featured it in January. The glove maker has an export-oriented business that is mainly denominated in US dollars. Its major foreign markets are India and Vietnam, both of which are fast-growing countries in terms of economy and population.

Superlon is relatively cheap, trading at a PER of 10 times, compared with the other glove makers, which have PER ranging from 13 times to 29 times. In its financial year ended April 30, 2016, net profit grew 77.6% to RM16.66 million from a year ago. According to InsiderAsia, Superlon has been spending heavily on upgrading its machinery to increase production capacity and efficiency, thus boosting margins.

As at July 31, 2016, the company’s cash pile stood at RM30.67 million, compared with RM27.53 million a year earlier.

InsiderAsia’s Koh says the research house continues to like all the stocks, which have performed well this year.

“We continue to like all the companies. Why? Very simple. Our criterion is always to select companies that are focused and have a competitive advantage and superior underlying business model, good management and track record. These things rarely change. Winners are winners,” she adds.

Next year, picking gems is unlikely to get any easier. Koh believes that valuations for the broader market are stretched, especially when it comes to big-cap stocks.

“Most investors are still beta investing, either through ETFs (exchange-traded funds) or unit trusts. To outperform, we have to be an alpha investor. We always welcome the challenge — to find winners. For more on our 2017 outlook, look out for the upcoming special issue of The State of the Nation. InsiderAsia stock recommendations and company reports are available on www.absolutelystocks.com,” she says.