AS we enter into the second week to the start of 2015, the writers on The Star’s business desk try their hand in the area of stock-picking, which is a hazardous exercise.
Based on experience, even the best of fund managers get it wrong.
Quite a number of predictions made at the start of last year by fund managers were way off the mark. But so was the market. Nobody expected oil to be the catalyst for killing the exuberance. Nobody thought that if the price of oil dropped too much, it would negatively impact the finances of the Government and the Malaysian ringgit.
Who would have thought that the share price of Bumi Armada Bhd, one of the leaders in the provision of floating production, storage and offloading vessels, would go down to even below RM1?
Stock-picking is a science. It takes years of experience in analysing the fundamentals of a company, its management strength and the vagaries of the industry it operates in to even identify one company. On top of that, market conditions have to be conducive. After all, some stocks may have ample intrinsic value, but may remain that way if sentiments on them do not change.
We confess that financial journalists are no experts, but find below some stock picks based on what we know about the company, its fundamentals and business. After six months, we will revisit the picks.
Many might squirm when watching its advertisements on TV, but for shareholders, it’s just a great show to see the share price of this Internet-related company hitting a record high.
Its dividend yield is nothing much to shout about, but what the company offers is high margins and growth.
There is a risk that a stock at record highs should be viewed with some trepidation, but there are reasons why this stock could go higher. Internet-related services in Malaysia is starting to grow and My EG Services has locked in Government-related services with the possibility of more.
Revenue growth is projected at a higher than the 43.7% rate it clocked in 2014, with some estimates putting growth at 70% this year. What is driving such growth is the growing number of Government Internet services it has, which will soon include the custom service tax monitoring system. It has started immigration services for foreign workers and the next step is the road safety project for commercial vehicles, where it will reportedly make a profit from the insurance of such vehicles.
Net income is projected to swell from RM50.1mil in its financial year ended Sept 30, 2014 (FY14) to RM86.7mil for FY15. — By Jagdev Singh Sidhu
Unisem is expected to ride the ongoing recovery of the technology sector.
Having turned around its business last year, the company, which is involved in the provision of semiconductor packaging and test services, is expected to see earnings momentum picking up pace from now on.
Unisem has been consistently paying out dividends to its shareholders, even in the years when it was making losses. With a brighter earnings outlook for the next two years, dividend yields from the company will likely increase to 3%-4% from around 1% in 2013.
At its current price, Unisem’s shares are trading at around 15 times its projected earnings for the financial year ending Dec 31, 2015. This compares with the industry’s valuation of 20 times projected earnings for 2015.
According to the Semiconductor Industry Association, global sales of semiconductors will continue to grow encouragingly through at least 2016. This momentum is supported by strong demand from the smartphone and automotive industries.
Unisem is well-positioned to benefit from this optimism, and hence, the upside potential in its share price. — By Cecilia Kok
After getting shareholders’ approval to acquire Tecnic Group Bhd’s businesses for RM200mil, SKP has become a significantly larger plastic parts player with an even more diversified customer base.
SKP’s management has targeted to expand its topline by 30% for the financial year ending March 31, 2016 (FY16), taking into consideration the consolidation of Tecnic’s businesses as well as the commencement of SKP’s new plant in Senai, Johor.
SKP also has a dividend payout policy of paying a minimum of 50% of its profits.
At its current share price of 69 sen, SKP offers a gross dividend yield of 2.46%, based on Bloomberg data. However, in a report in early October when SKP’s share price was around 66 sen, RHB Research had attributed a forecast dividend yield of 6.1% for FY16. The company also has an impressive dividend growth rate of 38.5% for the last five years.
Prior to the acquisition of Tecnic, SKP had derived a huge portion of its sales from its biggest client, British technology company Dyson Ltd.
The stock came under investors’ radar after it had secured more jobs from Dyson, as the latter expanded its product range.
With the acquisition of Tecnic’s units, SKP’s portfolio will broaden its customer base from the electronics sector to the food and beverage, oil and gas, industrial and auto sectors.
On top of that, the commencement of the new factory in Senai will see its production increase by some 25% this quarter.
The new plant is expected to boost production capacity by 75% in FY17.
Bloomberg data shows that all the three analysts covering the counter have “buy” recommendations on the stock, with a consensus 12-month target price of 93 sen. To be noted is that SKP has a net cash balance of RM13.8mil. However, it will be forking out RM100mil in cash and another RM100mil worth of SKP shares for its acquisition of Tecnic, which will be completed in March. — By Ng Bei Shan
MBM Resources derives 80% of its income from Perusahaan Otomobil Kedua Sdn Bhd (Perodua) through its direct 20% stake in Perodua and its distributorship business. The company also has an indirect 5% stake in the national carmaker through subsidiary Daihatsu (M) Sdn Bhd.
Key earnings drivers in 2015 include strong bookings for the Axia model and the upcoming facelift for best-seller Myvi. The group is also a distributor of Volvo and Volkswagen vehicles.
MBM Resources is in a transitional phase, where investments committed to broaden its income base are expected to bear fruit this year.
The utilisation rate at a new plant under 42%-owned Hino Motors Manufacturing (M) Sdn Bhd that started operations in early-2014 is projected to increase in 2015 as production goes into full swing.
The group’s new alloy rim plant is also expected to see higher production volume, as potential buyers complete their audit.
Meanwhile, MBM Resources is a beneficiary of the plunging yen. A cheaper Japanese currency lowers the cost of imported components and helps boost margins for the automotive company.
Shares in MBM Resources had been relatively stable in the past six months, despite increased volatility in the broader market. At the current market price, the stock is supported by relatively cheap valuations of about seven times projected earnings and a decent dividend yield of 4% – assuming a steady payout ratio of 20%.
Key risks include tighter hire-purchase lending curbs that may limit consumer demand and sustained cheap petrol prices that may reduce the appeal of smaller cars. — By Izwan Idris
Its core business of providing business process outsourcing (BPO) services to local and multinational companies has seen Scicom build a steady base to ensure stable income.
This has helped Scicom over the years to demonstrate its ability to pay out steady dividends, thanks to its growing customer base and diversification in business portfolio. From being primarily a company that provides its clients with services from the front-end to the back-end and delivering it in 39 languages from three centres, Scicom’s growth is coming from providing services to the Government.
According to a research report by Affin Hwang Capital, it likes Scicom for its steady BPO business and growth in the Education Malaysia Global Services (EMGS) sector. The EMGS business is primarily to help the Government process visas for foreign students pursuing their studies here. The numbers have been increasing and according to the research house, it is expected to hit 200,000 in five years.
Scicom’s business model is scalable with little capital expenditure, leaving the company with ample room to pay out dividends, which it has been doing. Scicom is also one of the three companies chosen by Khazanah Nasional Bhd to undertake training for its staff who are going be to laid off, following the proposed restructuring of the ailing Malaysia Airlines, in which Khazanah is the majority shareholder. This year, this will be another new business avenue for Scicom, which has centres in Malaysia, Indonesia and Sri Lanka.
According to Affin Hwang Capital, Scicom is expected to hit a net profit of RM35.4mil on a turnover of RM188.8mil in the financial year ending June 2015.
Last year, with a profit of RM23.2mil, it had declared a dividend of seven sen per share. In the first quarter of this year, it has already declared a 1.5-sen dividend after a one-for-five bonus issue. – By M. Shanmugam