This article first appeared in Capital, The Edge Malaysia Weekly, on October 5 - October 11, 2015.

WITH fears of China’s economy slowing and uncertainty over the US interest rates, the third quarter has proved to be the worst yet for global stock markets this year.

Black Monday on Aug 24 brought key indices back to one-year lows, with the Standard and Poor’s 500 Index, Dow Jones Industrial Average and Shanghai Composite Index shedding 11%, 10.7% and 27% respectively in just one week. The local bellwether FBM KLCI retraced 12% during the same period, returning to levels not seen since 2012.

Even so, Insider Asia’s 30 stock picks featured in The Edge Financial Daily and digitaledge Daily over the quarter have continued to outperform the benchmark index.

While some stocks corrected on rising valuations, the portfolio’s gains to date still averaged 4.9% (see table), easily outperforming the FBM KLCI, which, on aggregate, fell 5% over the quarter to 1,621 points as at Sept 30.

Volatile market conditions in recent times have led to investors turning to more fundamentally sound companies with strong cash flow and sustained profit growth.

Insider Asia’s top performers this quarter were those with sizeable exposure to exports, particularly to the US.

The steep and continuing decline of the ringgit against the greenback this year has made the companies prime beneficiaries of foreign exchange gains.

While the downward trend began late last year, the ringgit saw sharper and more pronounced depreciation in August this year. The local currency slumped over 16% in just two months to an 18-year low of 4.457 against the US dollar on Sept 29.

For export-oriented companies such as Cocoaland Holdings Bhd, Prolexus Bhd, Magni-Tech Industries Bhd and Poh Huat Resources Holdings Bhd, the ringgit’s decline has had a positive impact on their earnings prospects and this is reflected in their share price. The four stocks have gained as much as 29%, 20%, 36% and 27.5% respectively from the time they were first featured by Insider Asia.

Prolexus and Magni-Tech, two of Insider Asia’s strongest performers, are contract garment manufacturers mainly for Nike, from which they derive 90% and 80% of their revenue respectively.

Last week, Prolexus released its results for the financial year ended July 31, 2015 (FY2015). It saw a 17% year-on-year rise in net profit to RM21.6 million while revenue increased 19% to RM350.3 million on higher apparel sales.

The company’s future growth will come from the doubling of its capacity at its China facility — slated for completion this quarter — to meet Nike’s fast-growing sales.

Prolexus (fundamental: 2.10; valuation: 1.50) had net cash of RM22.7 million as at July this year. Its dividend payout has been increasing, from 8% in FY2012 to 15% in FY2014. For FY2015, it paid out 1.5 sen, giving it a yield of 0.6% based on its close on Sept 30.

Magni-Tech (fundamental: 2.80; valuation: 1.50) has had a similarly good year, with net profit for FY2015 ended April 30, surging 24% to RM52.1 million on foreign exchange gains and lower costs. Revenue rose 10% to RM716.4 million.

For the first quarter ended July 31, 2015 (1QFY2016), the company saw its net profit soar 54% to RM15.6 million while revenue grew 9% to RM193.8 million. It is now sitting on a hefty cash pile of RM100.1 million.

Accordingly, Magni-Tech last week announced a higher dividend per share of 15 sen — compared with 13 sen in FY2014 — which works out to be a yield of 2.9% based on its close on Sept 30. According to Insider Asia, Magni-Tech has room to raise its 31% payout ratio.

Snack maker Cocoaland (fundamental: 2.80; valuation: 2) suffered a minor setback in July when Hong Kong-listed First Pacific Co Ltd aborted its buyout offer of RM463.3 million — the latter said Cocoaland was no longer a strategic fit.

Although the stock saw an immediate selldown, this did not persist and its share price has since recovered.

For the first half ended June 30, 2015 (1HFY2015), Cocoaland saw its net profit double to RM15.6 million while revenue rose 4.1% to RM129.4 million on forex gains and cheaper raw materials. Its net cash stands at RM61.8 million.

Cocoaland remains an appealing investment with Insider Asia expecting a strong double-digit growth this year, pegged to a 160% and 260% capacity expansion in the production of its fruit gummy and hard candy respectively.

Some 60% of its sales comes from exports, where the stronger US dollar is a boon. It had a trailing 12-month dividend yield of 11.1% as at Sept 30.

Furniture maker Poh Huat is also a beneficiary of the stronger greenback, despite a fire ravaging its facility in Vietnam on Aug 24. Management asserted that the plant was insured and would see minimal disruption to its operation, after which the stock rebounded to new highs.

For the cumulative nine months ended July 31, 2015, Poh Huat’s net profit almost doubled to RM23.33 million, while revenue climbed 17% to RM313.75 million on higher margins and forex gains. It had net cash of RM20.7 million as at July 31.

Poh Huat (fundamental: 2.10; valuation: 2.40) has announced a second interim dividend of three sen per share, bringing the total to six sen apiece this year. The trailing 12-month dividend yield was 4.33% as at Sept 30.

Another outperformer, Klang-based Superlon Holdings Bhd (fundamental: 3; valuation: 2.40), is a manufacturer of nitrile butadiene rubber foam insulation materials for the heating and air conditioning industry.

With some 70% of its products exported to other Asian countries, it too has profited from the ringgit’s decline.

Net profit for FY2015 ended April 30 jumped 60% to RM9.4 million on the back of a 21% gain in revenue to RM74.5 million.

For 1QFY2016, net profit tripled to RM3.86 million on the back of an increase of 28.5% in revenue to RM22.11 million. As at July, net cash was RM13.5 million.

To grow its market share, Superlon plans to spend RM12 million on expanding its capacity over the next two years. It had a trailing 12-month dividend yield of 6.02% as at Sept 30.

Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

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