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Tuesday January 29, 2013
THE impending general election may be wrong-footing stock market investors due to uncertainty concerns. But if you are one of those banking on the current administration staying in power, there are some stocks that are worth taking a bet on. These are companies that are doing well but which also have a political flavour one way or the other. These could be in the form of government contracts, shareholdings or just personalities involved in their key management or ownership. StarBiz presents eight stocks to keep on your radar.
SapuraKencana Petroleum Bhd
THIS oil and gas giant, although impressive in its own right, has obvious political links. While its executive vice-chairman Datuk Mokhzani Mahathir is the son of former prime minister Tun Dr Mahathir Mohamad, the group president and chief executive officer Datuk Seri Shahril Shamsuddin and his family have always had close ties with the Najib administration.
And business is seemingly good. Currently, it has a sizeable RM18bil order book, 35% of which is from locally-secured jobs while Brazil and the Gulf of Mexico its second largest market contribute about 24%. About 65% of SapuraKencana's jobs are for full engineering, procurement, construction, installation and commissioning works.
Going forward in Malaysia alone, there are RM300bil worth of jobs up for grabs. This is the projected capital expenditure of Petroliam Nasional Bhd (Petronas) over the next five years. SapuraKencana will be a likely bidder for many of the big jobs.
Together with its consortium partner, Norway's Seadrill, it is now in a neck-and-neck race against Technip-NosSkan to win potentially over US$5bil (RM15.2bil) of contracts in Brazil.
Industry experts are expecting SapuraKencana to garner RM3bil to RM5bil worth of contracts annually.
Other recent developments for SapuraKencana include its frontrunner position to clinch the Samarang central processing platform project from Petronas.
SapuraKencana closed Friday at RM2.95. The consensus target price for the stock is RM3.46.
THE construction sector is always said to have some political flavour. A good case in point is construction giant Gamuda, which is often seen as a proxy to politically-linked stocks on Bursa Malaysia.
Last year Gamuda secured one of its most significant jobs.
Gamuda became the project delivery partner (PDP) with MMC Corp Bhd for Malaysia's biggest infrastructure project, the My Rapid Transit (MRT) in the Klang Valley.
MMC-Gamuda KVMRT (PDP) Sdn Bhd a 50:50 joint-venture company between Gamuda and MMC Corp was formed on Dec 27, 2010, while the formal agreement between Mass Rapid Transit Corp Bhd (MRT Corp) and the MMC-Gamuda joint venture on the appointment of the latter as the PDP was signed on Feb 10, 2012.
The primary function of the PDP is to deliver the KVMRT Sungai Buloh-Kajang (SBK Line) within the agreed key performance index of target cost and completion date.
With RM160bil worth of rail contracts up for grabs this year, Gamuda is looking forward to participate in upcoming infrastructure projects including the Kuala Lumpur-Singapore high speed railway link and the MRT's second line. There's also the remaining double-tracking rail job, from Gemas to Johor Baru.
Meanwhile, the Government is already conducting feasibility studies on the construction of the second and third MRT lines and will make its decision on the lines next year.
The two new MRT lines consist of the Circle Line which is an orbital line around Kuala Lumpur city while the other line is similar to the SBK Line, but runs from the underserved areas of Kepong and Sri Kembangan.
Recently, Gamuda's shares have garnered interest on reports that the company is in talks to sell its stake in highway operators Sistem Penyuraian Trafik KL Barat Holdings Sdn Bhd (Sprint) and Lingkaran Trans Kota Holdings Bhd (Litrak).
Reports have indicated that Gamuda, which has a 30% stake in Sprint and a 45% stake in Litrak, was in talks to sell its holdings in both entities for over RM4bil.
Gamuda closed Friday at RM3.64. The consensus target price is RM4.31.
CIMB Group Holdings Bhd
ONE of the stocks with the biggest political perception is undeniably CIMB. Its group chief executive Datuk Seri Nazir Razak is the younger brother of Prime Minister Datuk Seri Najib Tun Razak.
Recently, CIMB proposed to put in place a dividend reinvestment scheme. The move gives its shareholders the option of reinvesting their cash dividends in the company.
Nazir has told reporters that the group was focusing on CIMB 2.0, its codename for an exercise which includes implementing large-scale internal changes and integrating its new acquisitions The Royal Bank of Scotland (RBS) and the Philippines' Bank of Commerce (BoC).
CIMB's key acquisitions last year included a proposed 59.9% stake in BoC for RM881mil, and most of RBS' investment banking businesses in Asia Pacific for RM781mil.
Banking analyst Cheah King Yoong said although CIMB's share price had underperformed its banking peers last year, he expected the group's earnings momentum to remain strong in 2013.
“This is in anticipation of accelerated disbursement of economic transformation programme-related corporate loans and higher contributions from the investment banking operations,” said Cheah.
Over the near term though, he expected the group's share price performance to be capped given the group is highly vulnerable to increased market risk premium with the 13th general election drawing closer, particularly in view of its high foreign shareholdings, which stood at 40.9% in December 2011.
“Even though we continue to like CIMB's management track record, strong banking franchise and good proxy to Asean exposure, we believe its current share price offers limited upside in the near term. Meanwhile, OSK Research which has a trading buy call on the stock, said CIMB expected to realise gross proceeds of RM1.11bil from the sale of CIMB Aviva Takaful Bhd for RM1.8bil.
“This transaction will help it free excess funds that can be used to shore up the group's capital ratios ahead of Basel III commitments,” said OSK Research.
CIMB currently has investment banking presence in Malaysia, Indonesia, Singapore, Thailand, Brunei, Vietnam, Bahrain, Sri Lanka, London, New York, Australia, China and Hong Kong.
CIMB closed Friday at RM7.21. Consensus target price is RM7.21.
MyEG Services Bhd
ONLINE government services channel MyEG Services Bhd is the Government's most prominent partner in connecting services to Malaysians on the virtual platform.
Its principal activities are developing and implementing e-government services as well as providing related services for such projects.
On top of e-government projects, executive chairman Datuk Norraesah Mohamad is also a member of the Umno supreme council and was a senator in 2005-2008. Norraesah owns 1.17% of MyEG.
Currently, MyEG is collaborating with 12 government agencies, with the Road Transport Department contributing almost 50% of its total income, so that should give you an indication of how intrinsically-tied this company is to the current administration.
Last month, MyEG revealed a plan to invest up to RM60mil in its financial year 2013 to introduce a new online tax monitoring system and online renewal service for foreign worker permits. The latter is currently for foreign maids only but MyEG plans to expand that to the plantation and construction sectors.
The two projects are expected to be the main driver for the company's growth and profit in the coming years.
Managing director T.S. Wong said capital expenditure was generated internally and it would not affect its current dividend payout policy which is 30% of its net profit.
A week ago, MyEG entered a partnership with AIG Malaysia Insurance Bhd to provide general insurance products online.
For its first quarter (financial year 2013), the company recorded 21% growth in net profit to RM6.5mil, with a 13.2% expansion in group revenue to RM16.1mil driven by increased adoption of online renewals of auto insurance and road tax on its online portal.
Its first-quarter basic earnings per share improved 1.1 sen from 0.9 sen in the preceding quarter.
For 2012, its revenue grew 13.7% to RM66.9mil while net profit increased by 23.5% to RM27.34mil.
Looking ahead, Wong said MyEG planned to launch two major services per year, with 10% increase in revenue expected.
The group intends to grow its revenue by 20%-30% each year.
Aside from the 90% revenue stream from e-government services, MyEG is also looking to diversify its government-related business to commercial services.
Malaysia Marine and Heavy Engineering Holdings Bhd
MALAYSIA Marine and Heavy Engineering Holdings Bhd (MMHE), a subsidiary of MISC Bhd, would appear to be another obvious political play. MISC is 62.7% owned by Petronas.
As at end-September, MMHE had an order backlog of RM2.3bil, comprising Kebabangan (RM756mil), Tapis EOR (RM635mil), FPSO Cendor (RM277mil), F14/F29 (RM216mil), Gumusut-Kakap FPS (RM198mil) and others (RM220mil).
MMHE is tendering for RM5bil worth of new projects, of which, RM3.3bil are in domestic projects and RM1.7bil in overseas works.
In March last year, MMHE acquired the 52.6ha fabrication yard in Johor from Sime Darby Engineering Sdn Bhd, a wholly-owned unit of Sime Darby Bhd, for RM393mil.
In December, Exxon Mobil Corp's subsidiary awarded a RM165mil contract to MMHE to build the facilities for the Damar gas development project.
The project involves MMHE building the topsides and platform jacket for the project.
For its third quarter financial year 2012, MMHE reported weaker earnings of RM8.1mil from RM80.2mil in the same period last year.
The lower profit was due to provision for higher-than-expected expenses incurred by an ongoing conversion project as well as from its share of losses arising from the jointly-controlled entities' performance.
MMHE closed Friday at RM4.20. The consensus target price is RM4.28.
IT'S been 18 months since Prestariang Bhd was listed.
This provider of information communication technology (ICT) training, certification and software still has big plans in the offing with the opening of its boutique university taking centre stage for now.
Mooted by the Government, the university which will be launched on Jan 31, will provide the company a recurring income on top of its current businesses which include the provision of training, certification and software to clients such as government ministries and local universities, which are among its biggest clients.
It works with top global IT companies in the provision of such services.
Currently, 70% of Prestariang's business comes from the public sector. It enjoys a gross margin of about 40%, superior to that of its other ICT and eduction peers largely due to its ability to do business on a large-scale basis, according to analysts.
Analysts have said that Prestariang, which posted a net profit of RM10.2mil for the third quarter ended Sept 30, is in a sweet spot as the Economic Transformation Programme (ETP) continues to unfold itself.
A lot of the objectives set out in the ETP will require much reskilling and upskilling, which is where the company's expertise lies.
The stock disappointed many when it fell 18% lower on the first day of its trading.
The downtrend persisted for a while after that with the share price dipping to as low as 52 sen. It has since recovered to RM1.14 but is still trading at a price earning ratio that is half of its competitors.
Cypark Resources Bhd
INTEGRATED renewable energy developer and environmental solutions provider Cypark Resources Bhd is poised to ride on the initiatives implemented by the Government to promote green energy.
Before it was listed in 2010, it said it had been mandated by the Government to close 16 landfills nationwide.
The projects have since been completed and are ready for handover to the Government.
Apart from these, the company has also invested RM94.29mil to build a renewable energy park (RE Park) with grid connection on a 26ha remediated landfill in Pajam, Nilai.
The RE Park, announced by the Prime Minister, is one of the new investments from entry point projects of the ETP.
Cypark plans to develop RE with total generating capacity of 100 MW by 2015.
If the project is implemented in full, the 100 MW green energy is expected to generate additional revenue of up to RM130mil annually.
Cypark foresees market growth for solid waste management which is expected to be driven by increasing waste output from the country's population and heightened awareness of environmental protection.
The group expects to benefit from government projects as demand for solid waste management solutions and services is likely to come from public sector initiatives.
Cypark saw its net profit more than double to RM4.96mil for the fourth quarter of its financial year ended Oct 31, 2012 from RM2.42mil in the corresponding quarter a year ago.
The stock was traded at RM1.63 on Friday, 25% off its one-year high of RM2.18.
Handal Resources Bhd
AN offshore crane manufacturer for the oil and gas industry, Handal is hoping to bid for larger Petronas contracts. Its subsidiary Handrill Sdn Bhd is currently a rig owner/operator licensed by Petronas.
Analysts are also bullish about the prospect of the local oil and gas (O&G) industry in light of Petronas and other O&G players' intensified efforts in exploration and production activities to enhance the nation's oil reserves.
Additionally, Petronas' commitment to invest RM300bil in the sector will provide spin-off benefits and positive prospects for industry players such as Handal.
Despite it being only a medium-sized oil and gas contractor, Handal has managed to secure sizeable contracts. The company is reportedly tendering for RM22mil in local and overseas offshore crane jobs, which will give a margin boost of 11%-12%. Its order book is estimated at RM400mil for the previous financial year ended Dec 31, 2012.
Handal has diversified into the construction of rigs for marginal oil fields, with the acquisition of the Seacrane intellectual property rights last August for US$375,000. It allows the company to market offshore pedestal cranes under its in-house brand and also to position itself as an original equipment manufacturer for offshore pedestal cranes. It is looking to tap opportunities in Asia, Australia, Europe and Africa.
For the nine months to Sept 30, 2012 Handal raked in RM4.97mil net profit or 3.11 sen earnings per share on revenue of RM66.06mil.
Despite its potential, Handal's share price has been lacklustre since its listing. Handal made its debut on Bursa Malaysia in 2009 with an initial public offering price of 72 sen. The counter hit its all-time high of RM1.09 in August 2009. The stock was last traded at 43 sen.
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