Potential stocks joining club


  • Business
  • Saturday, 30 Dec 2017

STOCK picking is already difficult. Predicting the next stock that would go into the RM10bil club in the next three to four years is even harder.

We started the mission with choosing stocks that are already valued at RM3bil to RM7bil. The second screening process was to look at companies with direct exposure to consumer business.

Companies that are dependent on the Government for jobs were too-risky bets because four years is a long time in politics, let alone business.

We came out with four stocks that we think would double or triple their market capitalisation in the next three to four years.

Eco World Development Group Bhd

PROPERTY stocks are not in favour now. However, the industry will make a comeback because of the self-correcting mechanism that is embedded in the sector.

In an industry that is driven purely by commercial factors of supply and demand, the market would find a way of weeding out weak players. Only the stronger property developers with strong brand names would remain in the next four years.

In this respect, Eco World Development Bhd stands out as among the better property players. It has a strong brand name and a team with a proven track record. Its major shareholder, Tan Sri Liew Kee Sin, is the biggest name in the property market in recent years.

Eco World has about 5,000 acres of undeveloped land with an estimated gross development value of RM74bil. Its sales target for 2017 is RM4bil and next year, it is expecting a higher mark.

Next year, analysts have forecast Eco World to register a growth in profit to RM170mil on the back of a turnover of RM3.86bil. The following year, they are expecting the profit to be about RM350mil.

Maybank Investment predicts that in 2020, Eco World should hit a profit of about RM500mil on the back of a turnover of about RM6bil.

The additional factor that differentiates Eco World from the others in the industry is its 27% stake in Eco World International Bhd (EWI), the developer that focuses on overseas projects. The exposure to EWI gives Eco World the extra to ride through the current weak sentiment in the local property market.

At the moment, Eco World has a market capitalisation of RM3.26bil based on its share price of RM1.36.

For any property company, apart from excellent location of its land bank and low holding costs, execution of property projects is key towards being profitable. To this end, Eco World has crafted partnerships with large funds such as the Employees Provident Fund to reduce its holding cost on land.

It has a proven track record for execution. So it should see growth in the next few years.

MyEG Services Bhd

Can we imagine life without MyEG Services Bhd?

It is pretty much entrenched in our lives, and also one solid reason why we feel this service provider will be joining the RM10bil club soon.

Since its listing in 2007 when it started off with a market capitalisation of some RM138mil (at the end of the first day trading), the stock has multiplied by some 58 times to its current market capitalisation of RM8.07bil.

Earnings have been been equally impressive.

Just looking at the last five years – the company has delivered a compounded annual growth rate of 45.1% on its profits and 36.8% on its revenue.

While valuations may be relatively high (MyEG trades at about 34 times price-earnings), it is also delivering above-average returns.

For the financial year ended June 30, 2017, MyEG registered a net profit of RM201.51mil on turnover of RM371.6mil, indicating a margin of about 54.22% on its business.

All this started when its founder Wong Thean Soon saw a big opportunity to improve government services. In 2000, he launched MyEG Services Sdn Bhd to better manage the interactions Malaysian citizens have with their Government in areas such as immigration, licensing, utilities and tax payments.

These include vehicle road tax and drivers’ licence renewal and foreign workers’ permit renewal.

While many may quibble that MyEG has succeeded because of its government contracts, MyEG has in fact diversified into commercial solutions some three years ago.

Presently, some 70% of its revenue comes from the commercial segment. Hence, the bulk of its revenue isn’t coming from the Government anymore. Furthermore, this shows that its commercial segment is growing at a rapid rate.

Wong has told StarBiz before that MyEG leveraged on the fact that it is a provider of government services to build a strong level of trust and credibility among its users.

Also, MyEG achieves success by doing things differently. The company couples new enabling technologies with its dataset to the industries that it is expanding into.

“Many traditional industries continue to be disrupted by the ever-evolving network effect of the Internet. By applying data analytics to these different sources of data, we are able to provide differentiated services,” Wong said earlier this year.

AEON Credit Service (M) Bhd

From a business of providing easy payment schemes for customers purchasing consumer durables, Aeon Credit has grown into a semi-financial services company.

Today, apart from its easy-payment schemes, the company has expanded into issuing credit cards, offering personal finance schemes and insurance through its 64 branches and service centres as well as 12,000 participating merchants nationwide.

The strength of Aeon Credit is the growth of is credit card services where it currently has four million card members. Its parent company in Japan – AEON Financial Service Co Ltd – is one of the biggest credit card issuers and a leading consumer credit provider in Japan with 26.69 million members.

Aeon Credit has positioned its branches at all major towns in the country to capture the anticipated rise in consumption. Its target market is consumers from the lower-middle-class group that are currently underserved due to the stringent conditions of conventional banks.

It is Aeon Credit’s quick approvals that helps it grow market share. For instance, auto financing and personal finance segments of its business registered strong double-digit growth in the financial year ended Feb 28, 2017.

A research firm has forecast Aeon Credit’s topline and bottom line to grow steadily in the next few years. Affin Hwang Capital has forecast profit to hit RM260mil in 2018 and go beyond RM300mil in 2020.

The research house has also said that Aeon Credit may be ripe for a re-rating due to its ongoing digital transformation efforts such as e-wallet and mobile wallet offerings for its customers. Affin Hwang said that such efforts could be a game-changer for the credit company.

Apart from local operations, Aeon Credit has also expanded to India where it registered loses in the financial year ended February 2017. However, India is one of the growth markets in Asia and not many finance companies listed in Malaysia have exposure to that segment of the market.

QL Resources Bhd

The main driver of the company is Dr Chia Song Kun, a former Universiti Teknologi Mara lecturer in Mathematics. He swapped his maths books to build a family business anchored by marine products.

QL Resources has been showing steady growth in its business throughout the years and today, the activities are anchored on marine products, livestock farming and palm oil plantations. It is the largest producer of surimi in Asia and one of the biggest producer of poultry eggs in the country with 3.2 million eggs per day.

Its poultry egg business has spread out through Asean and to Hong Kong while its plantations are in Sabah and Kalimantan, Indonesia.

In April 2016, QL Resources took the strategic move to go into the retail store business by teaming up with FamilyMart, the world’s second largest convenience store chain after 7-Eleven.

Research house Affin Hwang Capital has predicted that the FamilyMart business will break even earlier than anticipated – in 2020 instead of 2022.

QL Resources plans to open 40 to 50 more stores in the Klang Valley by 2019. The stores are strategically located in places with high footfalls such as office blocks, universities and shopping malls.

Industry executives say that the retail outlets are the missing piece in QL Resources’ value chain of production.

“With the FamilyMart stores, it has better control over the pricing of its products. For instance, its processed food products, which are popular, is slated to see marginal increases in price next year,” says an executive.

In 2017, QL recorded a profit of RM196mil on a turnover of RM3bil. The bottom line is expected to increase by 50% to about RM300mil by 2020. By then, its market capitalisation should cross the RM10bil-mark.

Critics say that QL Resources’ price-earning multiple of 30 times makes it among the expensive consumer-food companies. However, not many have a growing retail chain to command better pricing.

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