KUALA LUMPUR (Aug 3): UOB KayHian Research expects the domestic market to trend up in August, underpinned by eventual loosening of lockdown restrictions and bright spots in the reporting season, the research house said in a note today. 

It highlighted that the FBM KLCI is already trading at its trough valuations of 1,490 (14.3 times forward PE) and has declined to its lows, which coincided with the deterioration of the Malaysian political scene. 

The research house shared its "alpha picks" for the month of August — ATA IMS Bhd, CIMB Group Holdings Bhd, Hap Seng Plantations Bhd (HAPL), Inari Amerton Bhd, Magnum Bhd, My EG Services Bhd (MyEG), Press Metal Aluminium Holdings Bhd and Yinson Holdings Bhd. 

UOB KayHian opined that all the stocks are direct or indirect beneficiaries of the economic re-opening which would allow (in phases) the loosening of workforce restrictions and operational re-commencement. 

Alpha picks, it explained, denotes a timeframe of one to three months and not UOB KayHian’s usual 12-month investment horizon for stock recommendation.

It expects its picks to benefit from the market’s expected turnaround when Malaysia closes in on achieving herd immunity in September or October. 

“The nation’s daily vaccination rate is encouraging, with almost all the targeted residents in the Klang Valley having received their first vaccine dose. We expect the country’s lockdown to be loosened in phases starting this month,” it said. 

For ATA IMS, UOB KayHian opined that it is an “underappreciated” EMS player which is staging a two-year net profit CAGR of 23% vis-a-vis its undemanding valuation of two-year forward PE of 14 times. It has a "buy" recommendation for the stock with a target price (TP) of RM2.95. 

As for CIMB (TP: RM5.10), UOB KayHian expects the banking group “to stage the strongest earnings growth among peers” with an estimated two-year CAGR of over 100%. 

Meanwhile, the research house sees the share price catalyst for HAPL (TP: RM2.45) to be coming from strong earnings in the upcoming quarters as CPO price has been trading above RM4,000/tonne since March 21.

For Inari (TP: RM4.30), UOB KayHian expects the catalyst for the company to come from exponential growth from RF segment, revival of iris scanner business and P34 plant seeing positive progression. 

“With the wide dispensation of Covid-19 vaccines which will allow Malaysia to achieve herd immunity by Oct 21, Magnum's valuations will partially price in the steep earnings recoveries in 2022.

“Magnum's business model is defensive and inelastic in nature, as ticket sales will quickly recover to 80-85% of pre-Covid-19 levels after Malaysia exits the current lockdown, as witnessed from the past few post-lockdown reopenings,” it said on Magnum (TP: RM2.45). 

It added that the company has an “appealing prospective dividend yield” of >7.5% in FY22-23.

As for MyEG (TP: RM2.65), the research house believes that forthcoming blockchain development and issuance of stablecoins will contribute positively to the group's earnings.

It also shared that the group recently received health authorities' approval to commercially distribute Zhifei's Covid-19 vaccines and Brethonix's rapid Covid-19 Breath Test in Malaysia and Philippines, which will provide a catalyst to its share price. 

On Press Metal (TP: RM6.30), the group is in a sweet spot to reap the positive spillover of stronger aluminium prices riding on strong demand from China, shortages of aluminium supply and preference for low carbon and greener aluminium, noted the research house. 

“As Press Metal (using mostly hydraulic power as an energy source instead of coal power) is also registering its product under the green aluminium category, we believe such practice could result in Press Metal becoming the preferred environmental, social and corporate governance investing target,” it said. 

Meanwhile, UOB KayHian opines that markets may soon price in Yinson's (TP: RM7.25) winning chances for imminent PDB (Parque Des Baleais) and Pecan FPSO awards. It added that Yinson is likely the sole bidder for both the mega FPSO contracts as bids are closing in the near term and these were projects that the company had bid for before, but were delayed/terminated due to the Covid-19 pandemic.