The year 2017 was in general a great one for Bursa Malaysia.
The benchmark FBM KLCI was up 9.5% on a year-to-date basis, and stocks across most sectors powered up. The technology sector continued to outperform, supported by expanding earnings and strong news flow, while oil and gas stocks also inched up as oil prices recovered to the US$60 level.
So with stocks now trading at higher valuations, getting that undervalued stock pick is becoming harder. What do we buy under the uncertain environment where elections are creeping around the corner, and the Dow is closing in on the 26,000 mark.
The following are stock picks from the investing community as well as StarBizWeek writers which they think will do well in 2018.
The gaming stock fell to a low of RM1.61 in June last year after it was slapped with a tax bill of RM454.4mil from the Inland Revenue Board.
The tax bill is more than what Magnum makes in an average year, which caused concerns on its ability to pay dividends. However the tax matter is something the company and authorities are fighting out in court.
Stripping out the noises from the tax bill, Magnum is well positioned as a defensive stock with steady earnings. At current prices of less than RM1.85, it still offers a decent yield of more than 7%, much higher than what banks offer.
The number forecasting group has been declaring dividends regularly until the tax issue came up. Should the tax matter be cleared up, as many are expecting, Magnum should go back to its way of declaring dividends every quarter.
Magnum’s topline growth has not been strong but nevertheless steady because there are a large number of people who still frequent number forecasting outlets to place their bets.
For the nine months to Sept 30, 2017, Magnum delivered a net profit of RM156.06mil in net profit on a turnover of RM1.9bil. In 2016, Magnum registered a higher turnover but marginally lower profit.
The gaming industry is another segment that is facing disruption due to technology. Traditional gaming companies such as Magnum face competition from illegal operators and companies that provide online betting services.
Even Magnum’s management concedes that the operating environment is tough. However the stock has been battered down due to the tax issue, which makes it a possible company to look at. — By M. Shanmugam
EXCEL FORCE MSC BHD
One stock that has been on a virtual uptrend in 2017 is financial software player Excel Force MSC Bhd (Eforce).
This stock started on its upward trajectory following the emergence of new owners in the company – namely that of MyEG Services Bhd in 2016. Since then, it hasn’t looked back.
On a one-year basis, the stock is already up 126.16%.
Thus, with such elevated valuations, why should we look at it in 2018?
For starters, the major shareholders of Eforce has been accumulating the stock since October 2017. As of Dec 12, Asia Internet Holdings Sdn Bhd has a 19.94% stake in Eforce.
For some history, Wong Thean Soon, the managing director and single largest shareholder of MyEG emerged in the company when he acquired an 18.7% stake in Eforce on April 26, 2016 via his vehicle Asia Internet Holdings.
Subsequently, the appointment of Datuk Norraesah Mohamad as executive chairman of Eforce on Feb 10, 2017, was a sign that Eforce could be a second MyEG. Norraesah is also the chairman of MyEG.
Then during Budget 2018 in October last year, Eforce caused excitement when the government said it was planning to introduce the Alternative Trading System. Some quarters see Eforce as a beneficiary of this new trading bourse.
The government said the ATS would be introduced subject to compliance to all requirements and regulatory standards. This would enable efficient and significant transactions.
ATS is a market venue to bring together purchasers and sellers of securities. It originated in the US as an alternative to traditional exchanges like the New York Stock Exchange and Nasdaq in trading of securities.
Since 2001, more than 50 countries have launched the ATS, providing investors with choices in execution venue. LiquidNet, Chi-X and BATS Global are the major operators.
Barring its new businesses, Eforce is presently the market leader in Malaysia for the provision of financial services business solutions where it currently has 90% of the stock broking Public Gallery Display System and 70% of electronic client ordering system market share in Malaysia.
For the nine months to Sept 30, 2017, Eforce recorded earnings of RM4.93mil, which was only a slight improvement from the RM4.08mil it recorded in the same period of the previous year. Revenue was almost unchanged at RM17.39mil.
At the stocks last price of RM1.54, it has a market capitalisation of 637.15mil and has a price earnings ratio of 97 times. — By Tee Lin Say
DIALOG GROUP BHD
Over the last few years, Dialog Group has successfully kept its head above water just as the oil and gas (O&G) industry was struggling due to the sluggish oil price environment.
In fact, the company’s bottom line has grown at a compound annual growth rate of almost 20% since 2014. Share price-wise, the stock surged by nearly 7% in the last 12 months alone.
And with crude oil gradually recovering as it hit US$70 per barrel recently, the outlook for Dialog looks promising.
The recovery in oil price will offer greater opportunities for more activities in the O&G segment, benefitting O&G services providers such as Dialog.
The good news about Dialog is that, the company is not only reliant on oil price recovery to sustain its earnings in the long run. It has a strategy to break away from oil price volatility and to generate strong recurring income stream.
To achieve this, Dialog aims to go big in the domestic tank terminal segment.
Being Malaysia’s largest tank terminal operator, Dialog is well-leveraged to tap the rising demand for tank terminal facilities in Asia.
With Petronas’ Refinery and Petrochemical Integrated Development (Rapid) project slated to commence next year, Dialog’s tank terminal facilities in Pengerang stands to benefit.
It is worth noting that the US$27bil Rapid project has already benefitted Dialog and will likely continue to do so moving forward.
Apart from Pengerang, Dialog is also expanding its tank terminal business in Tanjung Langsat, following the lease agreement and sale of facilities with Johor Corp in November last year.
Over time, Dialog aims to expand its Tanjung Langsat capacity to over 900,000 cu m from 650,000 cu m currently.
Going forward, the company seems to be on the right footing as the O&G industry recovers gradually. Analysts are generally positive on this stock, with 11 of them recommending “buy” and another six calling for “hold”. — By Ganeshwaran Kana
MITRAJAYA HOLDINGS BHD
Mitrajaya seems well-positioned to benefit from the continuous boom of the construction sector in the country.
The mid-size construction player already has a good start to the year by winning a RM103.05mil contract from Putrajaya Homes Sdn Bhd – a subsidiary of Putrajaya Holdings Bhd – last week. The three-year contract was for the construction of 404 apartment units under the “Perumahan Penjawat Awam 1Malaysia” (PPA1M) public housing scheme in Putrajaya’s Precinct 17.
This is not the first time that Mitrajaya has secured jobs from Putrajaya. The group has in the past undertaken PPA1M projects, so it appears Mitrajaya has got a favourable track record with the government-linked company.
Mitrajaya is eyeing RM1bil worth of contracts this year.
Last year, the group managed to bag RM944mil worth of contracts.
As at end-September 2017, Mitrajaya’s outstanding order book stood at a solid RM1.69bil, which would support a positive outlook for the group’s revenue and earnings.
The counter is currently trading at an attractive multiple of slightly less than eight times the consensus estimated earnings of the company for 2018.
Since reaching a record high of about RM1.40 in mid-May last year, Mitrajaya’s shares have fallen by about 33% to its current level of 96 sen. That would translate into a decent dividend yield of 5.3%.
On a less upbeat note, Mitrajaya’s results for the financial year ended Dec 31, 2017, would likely be unimpressive, with earnings expected to decline due to cost overrun for its Rapid contracts in Johor.
But 2018 will be a recovery year for the company.
For the nine months to September 2017, Mitrajaya’s net profit fell 15.7% to RM63.19mil from RM74.98mil in the corresponding period in the preceding year. Its earnings per share fell to 9.37 sen from 11.66 sen.
Backed by its strong order book, however, the group’s revenue rose 29.2% to RM894.91mil from RM692.46mil. — By Cecilia Kok
AirAsia’s iconic head honcho Tan Sri Tony Fernandes is never short of positive descriptions about his company, usually communicated via his tweets. The latest claim: that BigPay, which is AirAsia’s own e-wallet and prepaid card, which Fernandes hoped will be worth more than AirAsia itself.
That is an interestingly claim, considering that AirAsia has a market capitalisation today of close to RM13bil. Still, the idea may not be outlandish, considering the lofty valuations that many technology firms enjoy.
In BigPay’s case, it has the captive audience of the community of AirAsia users. Specifically, the BigPay e-wallet service aims to tap into AirAsia’s database of 63 million passengers. Another key attraction: Fernandes is already saying the e-wallet will be able to offer at least 4% savings on travel costs and exchange rates. Yes, foreign currency remittances and exchange is a big area being disrupted by technology.
And in BigPay’s case, they just have to find the right technology platform to plug into their millions of existing users to offer the savings. E-wallets have a myriad of other potential revenue streams, especially when you factor in big data and cross selling of other products and services to this community.
Technology aside (especially considering that Fernandes insists that the research analyst community isn’t aware of and are not factoring in the airline’s digital strategy) there already exists 17 buy calls on the stock, going by Bloomberg data.
They give the stock a consensus 12-month price target of RM3.91, which incidentally is not far away from the stocks’ current price of RM3.86. AirAsia may be trading at its all-time high but new factors are coming into play. For one, the stronger ringgit that would increase travelling activities. AirAsia is adding 36 aircraft to its existing capacity which gives an immediate topline growth.
Finally, there is the possibility of a special dividend from the disposal of assets. — By Intan Farhana Zainul
Stock picks for the year : From the fund managers