Our five panelists - Surf88.Com.Sdn Bhd chairman Lee Siang Chin, Mayban Investment Management Sdn Bhd CEO and director Amin Rafie Othman, CIMB head of equity markets and derivatives Kok Kong Chin , AmResearch Sdn Bhd executive director Gan Kim Khoon and KAF Research Sdn Bhd director Lucy Ng - discussed the prospects for the Kuala Lumpur Stock Exchange for the rest of 2003 in the first part publichsed on Thursday June 26, 2003. In the final part Friday they talk about the impact of the US economy, their investment strategies and choice of stocks. The discussion was chaired by StarBiz' senior editor (corporate) David Chow early this week.
STAR: Name 5 of your stock picks and give your reasons for picking these.
Rafie: As we are managing large funds, our stock picks have a liquidity constraint. Our top picks include Gamuda, a top construction company with a strong order book, margins which are still above the industry, relatively pro-active in seeking projects and proposing new projects to the authorities and it doesn't totally rely on pump-priming.
We like Genting, mainly because it has been battered down by the SARS crisis. One which is not the run-of-the-mill stock which we like is DRB-Hicom. Profits would be driven by an increasing contribution from their Ipoh-Rawang double tracking project. Then there are the sales of Honda City. The stock is also quite well supported by RNAV valuations.
We have also always liked CAHB. It is one of the laggards but has gone up nicely. It has the second highest beta among all the six big banks. It also owns 75% of CIMB and its valuation is relatively undemanding.
Another stock for us is MPI. At the end of the day, there will be an uptick in the semiconductor industry. In the US, the wealth effect comes into play, and people have more money because of stock market profits or whatever, this would trickle down to the consumer. If there is a replacement cycle in place, that would benefit MPI. It has also got analogue devices packaging contracts in place.
Lee: Ahmad Zaki Resources is a second board company with a market cap of about RM150mil, a healthy order book of RM430mil and cash position of RM1 per share, which is a third of its share price of about RM3.20. There are still some contracts to be awarded, like the Subang-Kelana road project worth RM200mil and Universiti Teknologi. It has also got a 2-for-5 bonus issue at a final stage of implementation.
A smaller cement company like YTL Cement is much cheaper at 7X PER than Malayan Cement, which is trading at 20X PER. Dividend yield is 4.5%, and we believe that they would repeat that this year.
As for the bigger stocks, Maxis, we think, will continue to grow its subscriber base at the expense of Celcom. The next growth phase in Maxis will be in data communications. We believe the management is very strong and the integration with Time Cellular would not be a problem.
PLUS – a highway company. It has not done very much since its IPO. It has a monopoly in inter-state travel in the west coast of the peninsula. It offers very good value, and trades at a discount of 16% to its DCF (discounted cashflow) value of RM2.90.
The last one is Guinness, which some may consider boring. It has stable operations and offers downside support for its share price. The dividend yield is very strong at 7.5%, it has 16X PER, a good balance sheet, 40 sen cash per share, good corporate governance and management.
Kok: BAT is obviously a market leader in its sector, with absolutely no competition. Its dividend yield is over 7% and basically a money printing machine. It has a strong management we can trust. OYL is another market leader. I have always recommended OYL from RM12 and now it's RM24. There is a lot more upside going forward for this one. It gives about 5% dividend yield, is very strong in management, brand name and corporate governance.
I agree with Lee's pick for Maxis. Obviously for subscriber growth, it is towards the tail-end but going forward. YTL Power falls into the same category. If you want to look at a superbank in Malaysia, I think Maybank qualifies. It is very well run and has a very extensive branch network. It also focuses on shareholder value creation.
Ng: I look at various things – arbitrage opportunities (trading buys), election themes, liquidity, economic recovery and, underlying all these would be the valuation and potential growth. First on the arbitrage, Sunway Technology is going to be suspended from trading on July 2. I think the suspension would last a month for the restructuring of the PN4 firm. It will be injected with a new company called Dolomite which is in quarry, building materials and construction. You have good upside there, within a time frame of one or two months.
Then, in an economic recovery, banking would be the best proxy. Our stock pick is Maybank, although we also like AMMB, RHB Cap and CAHB. Maybank has been an outperformer for the past one year.
Valuation-wise, Isyoda is our pick. Its IPO price was RM1.75, and it closed at RM1.40 last Friday. Its dividend per share for 2003 is expected to be 10 sen or an effective dividend yield of about 7%. Its order book of RM400mil to RM500mil outstanding will last them until December 2004.
SP Setia is also our pick. It has lots of liquidity and land bank, well managed with good political connections. Its valuations are also not demanding.
We also like a relatively small-cap company - Eng Kah Corp. It is involved in personal care products, which is a growing industry. It makes 1,000 products for many manufacturers – with some big names. It's a contract manufacturer and its margins are much higher than the companies it is manufacturing for. It is also looking at expanding. With 15% to 20% EPS growth and a 4% dividend yield a year, this stock will give a capital appreciation return of 20% per year.
Gan: In big cap laggards, I have Maxis. If you look at the telecoms sector, there are effectively only 3 stocks you can invest in, given that Time dotCom no longer has the mobile business. So it is only Telekom, Maxis or DiGi. We like Maxis because we project that its earnings growth in 2004 will be very strong at 35%. It has got a healthy balance sheet, and even its yield at 3.6% forecast for 2004, is very reasonable.
The other stock is the mid-cap strong fundamental stock, WCT Engineering. Its order book is RM1.4bil. On top of that, it has locked in property sales of RM500mil. It will also see maiden contribution from toll road earnings starting this year. All these will lead to a compounded annual growth rate of 20% from 2003 to 2005. It is actually a very good stock, coupled with a low PER of only about 7X, while its ROE is very high at between 23% and 25% over the next three fiscal years.
Then, stocks that will benefit from the higher personal disposable income arising from the cut in EPF contributions and low deposit rate are Hong Leong Bank and Berjaya Sports Toto.
Hong Leong may benefit from the consumer banking side and also from an expected increase in consumption credit like hire-purchase, credit card and mortgages. Besides that, I like Hong Leong Bank because it has the best ROE among our bank coverage universe. Its ROE is close to 16% compared with the likes of RHB Cap or CAHB whose ROEs are between 7% and 9%.
B-Toto is another stock which we think will benefit from the 2% reduction in EPF contribution. People are unlikely to save that. If you earn RM3,000 a month, you are unlikely to save the RM60 or so. It is probably going into consumption spending and I think gaming is one avenue.
Again on the economic package and how some stocks can benefit, the incentives given to the property sector like rebates for loans for properties costing below RM180,000 or even the availability of houses costing RM150,000 for foreigners, will benefit companies such as SP Setia.
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