CIMB Research adds Genting, MAHB, YTL Corp to top picks

KUALA LUMPUR: CIMB Equities Research has revised its top picks and added Dialog, Genting, Malaysia Airport and YTL Corp to its top big-cap picks list.

It said on Tuesday it had replaced Sime Darby, YTL Power and Bumi Armada.

In the mid to small cap picks list, its added Berjaya Food, CCK and Oceancash Pacific.
“Our revised top three picks are Axiata, Dialog (replacing Gamuda) and Tenaga Nasional,” it said in its strategy report.

CIMB Research said among the 128 companies that it actively covered, 16% reported results that were above expectations in 3Q17 vs. 9% in 2Q17. 

The number of companies with results that were below our expectations rose from 35% in 2Q17 to 37% in 3Q17. 

“Our revision ratio (number of forecasts upgraded vs. number of forecasts downgraded) improved to 0.43x in 3Q17 vs. 0.26x in 2Q17. This revision ratio figure is the highest attained since 4Q16.

“However, we were slightly disappointed by the high ratio of companies whose results came in below our expectations,” it said.

CIMB Research said the 3Q17 market earnings growth slowed to 1% on-year (2Q17: 2% on-year) due to slower earnings growth from the travel and leisure as well as services sector. 

The corporate earnings growth of 1% in 3Q17 trailed behind Malaysia’s GDP growth of 6.2%. This is partly because corporates were impacted by weaker pricing or the inability to pass on their higher operating costs.

However, Malaysian corporates remain on track to delivering market earnings growth of 6.5% in 2017F and 5.7% in 2018F.  

“We maintain our end-2017 and end-2018 KLCI targets of 1,790 and 1,920, respectively, which is still based on a three-year average price-to-earnings (P/E) of 16 times. 

“Malaysia’s prospective P/E premium over the region narrowed from 6-9% in Aug 2017 to 3-4%, currently. We believe this could be due to the recent underperformance of the Malaysian market against its regional peers. 

 “We continue to like the construction, utilities and small-cap sectors. We continue to advise investors to take profit on cyclical stocks that have done well and switch to more defensive sectors,” it said.

CIMB Research has an Add for Axiata, target price RM6 versus  last traded price RM5.33. 

It expects Axiata’s core EPS to rebound a strong 29%/50% in FY18F/19F due to 1) much higher contributions from XL, 2) net profit breakeven for Airtel by end-2018F, and 3) cessation in equity accounting for Idea's losses post-merger with Vodafone.

It also has an Add for Dialog Group Bhd, TP RM3.13 versus last traded price RM2.41.

CIMB Research said Dialog is expected to grow its earnings by 58% cumulatively over the next three years, as several of its major projects come on-stream. 

In addition, Dialog still has a significant amount of land at Pengerang for Phase 3 expansion, which will be triggered soon. Dialog has an attractive low-risk business model, is well managed, but yet is expected to deliver robust earnings growth.

As for Tenaga, it has an Add with TP RM15.70 versus RM15.46 close.  Tenaga offers resilient organic earnings growth potential.

“In Malaysia, it is building four new power plants, which should raise its generation earnings in 2017-2020F, in our view. In addition, stronger earnings driven by the new assets it acquired in the past year are another potential re-rating catalyst,” it said.
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