IN times of volatility, stock picking can prove to be a mighty challenge.
Here are top ten stock choices of research heads and fund managers based on a myriad of reasons. Noteworthy is that most have stuck to defensive and large plays, given the unstable conditions of external economies.
TA Research head Kaladher Govindan’s picks
Kaladher advises clients to stick to low beta defensive stocks that pay good dividends while having high domestic exposure.
That said, he likes PLUS Expressways Bhd which has a low foreign shareholding of 9%, limiting downside of foreign sell-downs in volatile times.
As PLUS controls the nation’s transportation backbone – the North-South Expressway, he sees little impact
from the Government’s resolve to cut subsidies (which includes toll charges) as past data indicate that traffic flow normalises after a short stint of correction.
PLUS’ financial year (FY) 2009 dividend yield was 5%.
Khalader also likes the banking sector with CIMB Group Holdings Bhd as one of the top picks.
“Banks are our top picks as they have the capacity to record better earnings growth on the back of higher loan growth, lower provisions, higher interest income and greater fee-based income once there is a revival in capital market activities,” he says.
CIMB, as the country’s second largest banking group, is a good proxy to that. Besides that, the overall sector would also benefit from the normalisation of interest rates.
Khalader projects that for every 25 basis point increase in overnight policy rate (OPR), it would translate into a 4%-5% improvement in CIMB’s FY10-11 earnings.
Kenanga Research head Yeonzon Yeow
Developer and provider of e-government services MyEG Service Bhd is Yeow’s top stock pick as this company virtually monopolises the e-government services sector given its headstart – investment in capital expenditure especially for network of kiosks, inter-linked government departments and so on.
MyEG services will soon extend to new foreign maid permit applications and thereafter to foreign workers permit renewals and applications, upping potential sources of revenue.
The potential revenue from the sales tax collection concession could surprise on the upside significantly, he says.
MyEG’s track record in execution is spot on and it has the marketing expertise to drive penetration and market acceptance.
Its earnings are defensive with a strong recurring nature, but most importantly it is domestically driven and, as such, fairly shielded from the uncertainties in the global economic recovery.
Naim Holdings Bhd is a prime beneficiary of the Sarawak Corridor for Renewable Energy (Score) investment and development. It is the single largest property developer in Sarawak with about 2,700 acres of development land in the key Score economic areas.
It is also one of the largest contractors in Sarawak with more than RM1.1bil in its construction order book.
Yeow believes Naim will benefit from property development of township in the new economic areas to cater for the influx of workers for the key industrial projects earmarked to commence operations in Score.
It could also benefit from selling industrial land to potential investors and building the factory/plant for them as well.
AmResearch managing director Benny Chew
Chew picks chipmaker Unisem (M) Bhd as he believes demand for chips will continue to grow especially in the mobile phone, smartphones and personal computer segment, judging from current trend which is showing significant strength.
He points out that demand does not seem to be slowing in China – a massive market with rising income levels.
Unisem has said it would spend RM226mil this year on capex – the highest ever – even as it anticipates record sales owing to the boom cycle of the global chip industry, a good proxy to global economic recovery and increasing consumer confidence.
The market will start to price in a recovery in tanker rates moving into the second half of the year underpinned by deceleration in global fleet growth (from +9% in 2009 to +3% in 2010) and a rebound in demand which fell due to the economy slowdown, he says.
MMHE is on the verge of a strong earnings upcycle as margins recover from depressed levels in FY10 (forecast), while order book replenishment should accelerate on the back of increasingly heavy development spending for deepwater projects over the next four years.
UOB KayHian head Vincent Khoo
Khoo likes diversified company Tanjong plc’s aggressive plans to make significant regional acquisitions of power assets.
“They are constantly scouring for opportunities,” he says.
Tanjong aims to double its power capacity, especially in the Middle East and North Africa.
It aims to double its current 3,951MW of installed capacity over the next five years.
Among the independent power producers, Tanjong is his favourite because it has diversified businesses such as gaming to help cushion the impact of any possible mishaps with one certain segment of its business.
Additionally, Tanjong’s annual dividend yields average more than 5.5%.
WCT Bhd is Khoo’s choice for construction largely because it continues to bid aggressively for new jobs, both here and overseas to replenish its order book of about RM3.2bil (as at end-2009) and because of its track record in the business.
In Malaysia, it is currently bidding for jobs in Iskandar Malaysia, Johor, and a major water infrastructure project in Sabah.
Other potential awards of contracts include packages in the Klang Valley LRT extension project, the Pahang-Selangor water transfer project (dam, piping) and infrastructure projects in the Middle East.
It also stands in good stead, seeing that the Government has identified 52 high-impact projects worth RM63bil to be carried out by public-private partnerships under the 10th Malaysia Plan.
News flow on potential awards could intensify over the next one year.
Prudential Fund Management Bhd
Prudential likes Gamuda Bhd as it is a key beneficiary to the Government’s massive mass rapid transit (MRT) system plan.
The company has jointly submitted with MMC Corp Bhd a RM36bil proposal on the MRT to the Government, with feasibility studies currently being conducted.
Gamuda-MMC is believed to be a strong contender for the tunnelling works package worth RM13bil given its prior track record.
Gamuda is the only Malaysian contractor to date to have delivered an MRT system in Kaoshiung, Taiwan.
Net margins for a project such as this are generally attractive at about 10%.
As the country’s largest banking group in the country, Malayan Banking Bhd is a good proxy to the recovering global economy.
There has been massive cleaning up in its provisions for overseas investments, hence there should be an absence of large provisions in its coming financial results.
Maybank took a huge RM1.6bil goodwill impairment for its Indonesian purchase – the Bank Internasional Indonesia – and another RM353mil on Pakistan’s MCB Bank Ltd in its last financial year.
Like other banks, it is also set to benefit from the normalisation of interest rates.
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