Bursa in a re-rating mood

  • Business
  • Monday, 20 Mar 2006

AFTER two dreadful years in which the values of lower liner stocks were decimated, the stage was set for a recovery this year. 

Hence there has been a fairly broad-based rally among lower liner stocks since January.  

Some major shareholders or large corporates found stocks were ripe, or cheap, to be picked; and they offered to buy up entire companies. 

One was Koa Denko Bhd, a maker of electrical products for industrial use, which its parent company, Koa Corp of Japan, offered last month to take private. Koa Denko had cash per share of over RM1, higher than its last traded price of 85.5 sen before the offer was announced. Japan's Koa made a very fair offer of RM2 cash for each Koa Denko share.  

Cement Industries of Malaysia Bhd, or Cima, received an offer from French cement group, Vicat, for its cement-related assets.  

Newton views Bursa as a good investment option.

Investors also sought stocks in the electronics industry as global consumer demand expanded for compact, mobile gadgets.  

The latest sector to be re-rated is the construction sector, as investors believe numerous infrastructure projects will be funded under the Ninth Malaysia Plan that will be announced at the end of this month.  

One of the sectors that have yet to re-rated is the stretched plastic film industry. Here, the companies - Scientex Packaging Bhd, THONG GUAN INDUSTRIES BHD and BP PLASTICS HOLDING BHD - are still trading at single-digit price/earnings ratios (PEs).  

This is a sector that is less understood and researched than the glove industry. In its basic characteristics, companies in these two sectors have much in common. They serve global markets, are operating at full capacity and have new capacities coming on stream.  

However, they also face rising raw material costs. While investors know the glove-makers are able to pass on the higher costs, although there is a time lag, they are not aware the stretch film makers are also able to do so. Hence, glove makers were re-rated to double-digit PEs, while the stretch film makers are still in single-digits.  

In the overall, it is right that local investors are finally buying shares that offer value. If not, the shares would be bought at depressed prices by foreign funds instead.  

Foreign funds in the mood too 


The sell-down by foreign funds was much talked about last year. This year, it is observed there is some buying up of local stocks. This is particularly apparent in companies where the foreign funds have become substantial shareholders. That requires them to disclose their trades to Bursa Malaysia, and some of them were accumulating stocks almost every day.  

One of these stocks is Bursa itself, which has attracted the interest and money from Newton Investment Management Ltd. At its last report, this British fund owned 42 million shares, a stake of 8.2% in Bursa. Its last reported purchase was for 305,000 shares on March 3. 

The Capital Group, one of the largest mutual funds in the US, has been buying shares in IJM Corp Bhd. It last reported buying 403,100 IJM shares last Monday, which raised its stake to 9.9% in IJM. Capital Group owns many stocks in this country, including a substantial stake in property developer SP Setia Bhd.  

MAH SING GROUP BHD, one of the fastest growing developers in terms of profitability last year, is expected to register double-digit growth again this year.  

Fidelity, billed as the largest mutual fund in the US, has been active in buying Mah Sing shares this year, which partly explains its firm share price. Fidelity's most recent report was its purchase of 111,300 shares last Monday.  

Pelikan International Corp Bhd has the Arisaig Asean Fund Ltd as a substantial shareholder, which bought Pelikan shares right up to last Tuesday, according to latest disclosures. Arisaig Asean Fund, listed on the Irish Stock Exchange, is also a large shareholder of UCHI TECHNOLOGIES BHD.  

Hedge fund Level Global Investors L.P. bought 10.4 million shares, a stake of 5.2%, in Jobstreet Corp Bhd last month. Global Investors' interest could have been stirred by Jobstreet's mid-teens' PE whereas its counterparts in the US, Australia and China are traded at PEs of over 30 times. 

All these Malaysian stocks are profitable and have good growth stories. They probably also have other funds invested in them.  


MechMar powers up 


MechMar group had encountered problems in its major investment of a power plant in Tanzania for many years, but that plant is playing an even more vital role in that country now.  

A drought in Tanzania caused the country's six hydropower stations to produce only 50MW of electricity against an output of 347MW guaranteed by the state power company, according to the Nation, a Tanzanian daily, recently.  

As a result of that, the country's two independent power producers, which include MechMar's Independent Power Tanzania Ltd (ITPL), are running at full capacity.  

Spain and the International Monetary Fund have pledged to offer financial aid, the Guardian reported a week ago.  

MechMar had to restructure its banks debts in earlier years but it managed to reduce some of the debts, and reported a net profit of RM11mil or earnings per share of 7 sen last year. As it helps to light up Dar es Salaam at night, MechMar's financial position could also be brighter this year. 

 BURSA :  [Stock Watch]  [NewsIJM :  [Stock Watch]  [NewsJOBS :  [Stock Watch]  [NewsMAHSING :  [Stock Watch]  [NewsPELIKAN :  [Stock Watch]  [News]

For latest Bursa Malaysia indices, charts and other information click here

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