House picks


  • Business
  • Saturday, 02 May 2009

Stock picking can be a mighty tricky task, and more so, when the markets are volatile. But with expectations that equities may be oversold and a recovery may be in the offing, it is hard to resist scouring for gems with the hope that one can reap handsome gains upon a recovery. StarBizWeek offered five analysts the chance to name their top two stock picks.

OSK Research head Chris Eng’s picks:

*       Tenaga Nasional Bhd (TNB)

Eng sees TNB among the leaders in a broad market rally expected in the second half.

Given TNB’s weighting in the new FBM KLCI index which is expected to rise from 5.4% to 7.5% and its status as a key blue chip counter, positive investor sentiment may whet investor appetite towards the utility company.

Although Eng does not foresee a tariff hike in mid-June given the low cost of coal, he is positive on TNB’s ability to enhance the visibility of its future earnings if it manages to secure a fuel pass-through mechanism. In addition, the strengthening of ringgit in the next two quarters should help TNB post some forex gains.

*       Mudajaya Group Bhd

This is OSK Research’s top pick among small cap contractors due to its strong earnings prospects. Mudajaya possesses a sizeable outstanding order book of RM5bil to date.

The engineering and procurement (EP) contract for the Chhattisgarh independent power producer in India is expected to be Mudajaya’s key earnings driver over the next three years. The company is the EP contractor for the RM2.64bil phase 2 project, awarded early this year and scheduled for commencement in the third quarter. Gross margins for the entire project are expected to be 20%.

Mudajaya is expected to secure RM500mil worth of domestic projects this year including road works and buildings. It could participate in jobs such as the LRT extension and ERL for the second low-cost carrier terminal project.

MIDF Research head Zulkifli Hamzah’s picks:

·       Telekom Malaysia Bhd (TM)

Zulkifli likes TM for its attractive returns relative to the broader market. The national telco is expected to complete its capital repayment exercise involving RM3.5bil by the end of the second quarter. He also foresees scope for further capital repayment as TM has a domestic-centric business model.

TM also has a generous annual dividend policy involving a sum of at least RM700mil. This could translate into a gross dividend of 27 sen per share for its financial years (FY) 2009 and 2010, or an attractive yield of 11% post its proposed capital repayment exercise.

For the financial year 2009 ending December, TM’s revenues are expected grow at an annual rate of 1.4%. The tepid growth rate is not unexpected given the challenging economic environment coupled with declining revenues from its fixed-line business segment. Nevertheless, the company is expected to register handsome growth in its broadband business segment going forward.

·       EON Capital Bhd

He sees the downside risk to the stock is low given the current price of the stock has already fallen off a cliff and is trading at its lowest price per book value (P/BV) of 0.77x in the last seven years. EON Cap’s current P/BV of 0.77x is the lowest among the smaller capitalised banks.

The management indicated the bank’s total loan disbursements (retail and business banking) for the first quarter ended March had grown by almost 50% year-on-year to RM2bil and expected loans growth to hit 8% for FY2009.

Net non-performing loan (NPL) ratio as at the end of last year improved to 2.5% from 4.1% the previous year, and has thus moved closer to the banking sector’s net NPL ratio of 2.2%.

CIMB Research head Terence Wong’spicks:

·       Gamuda Bhd

He continues to rate Gamuda a trading buy as it stands to benefit from the rollout of mega projects, which has been expedited under the second stimulus package. Gamuda is expected to win more contracts especially in the areas of flood mitigation and railway-related jobs, its niche areas. These new projects will boost Gamuda’s already-sizeable outstanding construction order book of some RM8.5bil as at end-January 2009.

Gamuda’s share has been a laggard compared to its peers since the start of the year. For instance, while IJM Corp Bhd’s share price has risen by more than 30% since the start of the year, Gamuda’s share price has remained rather flattish. Hence, there is potential upside for the stock.

·       Lafarge Malayan Cement Bhd

Being Malaysia’s largest cement player with 41% share of the market, Lafarge is likely to be a big beneficiary of demand created by the Government’s pump-priming activities.

Wong expects local demand for cement to improve by the second half following the award of infrastructure projects to construction players. He expects the pick-up in demand to make up for the slowdown experienced during the first half.

Meanwhile, cost pressures have also eased for Lafarge, thanks to lower coal prices and cheaper diesel helping to lower transportation costs. This will improve the company’s profit margin going forward.

AmResearch regional head Benny Chew’s picks:

·       Axiata Group Bhd

On April 16, AmResearch upgraded its Hold rating on Axiata to a Buy with a higher fair value of RM2.15/share, based on a narrower discount of 15% to its sum-of-parts (SOP) estimate of RM2.50/share.

The research house believes the discount to its SOP will narrow down in tandem with easing concerns on its highly leveraged balance sheet post completion of its rights issue exercise, sometime in May. Hence it is now in the midst of reviewing its target price. It expects its FY09F’s net gearing to improve to 0.3x from 1.1 times (x) and total debt/EBITDA from 3.8x to 2.7x post rights issue.

Chew considers the market has priced in the 47% dilution impact arising from the proposed RM5.25bil rights issue, as well as potential weak 1Q09 results. Axiata is currently trading at FY09 PE of 10x versus its regional peers’ average of 11x. Axiata has also paid RM2bil, part of RM4bil owed to sister company, Telekom Malaysia Bhd, one month ahead of schedule.

·       IJM Land Bhd

AmResearch has reinitiated coverage on IJM Land with a Buy, and a fair value of RM2.40/share based on a 40% discount to its estimated fully-diluted NAV of RM4/share. Development assets anchored by its flagship The Light account for 84% of NAV, and investment properties at 14%.

Earnings are projected to rise to from RM84mil in financial year (FY) ended March 2009 to RM130mil in FY10, RM217mil in FY11 and RM270mil in FY12, with the 3-year earnings compounded annual growth rate of 49% underpinned by the maiden launch of the RM5.2bil The Light in the third quarter of 2009.

IJM Land already has locked in sales of RM700mil. Annual pre-sales are expected to expand from RM750mil in FY10 to more than RM1.0bil from FY11 onwards. Balance sheet is expected to remain strong with a net gearing of 25%.

Valuations are very attractive. At RM1.31/share, it is trading at a very steep discount of 67% discount to its net asset value.

TA Research head Kaladher Govindan’s picks:

·       JT International Bhd (JTI)

Kaladher likes JTI for its attractive dividend yield at 13.6%. Even so, JTI has been performing quite well in the midst of a challenging economic environment.

The tobacco company managed a healthy increase of 10.8% year-on-year to 3.02 billion sticks although the total industry volume posted a decline of 1.8% to 15.4 billion sticks from 15.6 billion sticks in 2007. Total industry volume is expected to contract 2% this year to 15 billion sticks. Assuming JTI manages to increase its market share to 21% from 19.6% last year, the company is expected to post a 3% growth in earnings per share (EPS).

As JTI’s products are mainly skewed towards the value-for-money (VFM) range, it could increase its market share as more consumers are expected to go for the VFM range with lower purchasing power squeezed by the current slowdown.

·       Guinness Anchor Bhd (GAB)

Cheers to GAB’s generous dividend yield of an estimated 9.1% for financial year 2009.

Second cheers is to news about the overall industry volume having stabilised after almost five years of contraction. GAB’s beer and stout have generally outperformed the market growth.

As of December 2008, GAB declares a blended market share of 60%, comprising beer at 46% and stout at 14%. The company is seen to have an upper hand in defending its market share, thanks to its strong brand presence.

(Based on the data given by the management, beer volume has grown by 3.25% over the last 30 years, while stout contracted by 1.06%.)

  TENAGA :  [Stock Watch]  [News]  MUDAJYA :  [Stock Watch]  [News]  TM :  [Stock Watch]  [News]  EON :  [Stock Watch]  [News]  GAMUDA :  [Stock Watch]  [News]  LMCEMNT :  [Stock Watch]  [News]  IJM :  [Stock Watch]  [News]  JTIASA :  [Stock Watch]  [News]  GUINESS :  [Stock Watch]  [News] 

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