Alpha Stock Picks 2018: A Smashing Start



Alpha Stock Picks 2018: A Smashing Start

Although our alpha picks’ return of +1.86% trailed the FBMKLCI’s +4.9% in Dec 17 amid hefty year-end window dressing, these picks have started the year with smashing month-to-date returns of 0.7-11.8%. Some have technically broken out. Good domestic liquidity and positive newsflow for these stocks should ensure continuing positive momentum. We maintain our alpha picks for January, namely Ann Joo, Bumi Armada, Gabungan AQRS, Globetronics, Serba Dinamik, VS Industry, and Yong Tai.



WHAT’S NEW
 Review of Dec 17’s picks. Only one alpha pick outperformed the market’s incomparable +4.9% return in Dec 17. Some index stocks were pushed up amid the year-end window dressing. Coming in at +5.2%, Ann Joo’s respectable performance rose in tandem with the mom (+8.1%) rise in the average steel bar price (Dec 17: RM2,633/MT).
 Key event catalysts during 1Q18 are: a) strong reporting season and hopefully good capital management for the steel (benefitting Ann Joo) and E&E (VS Industry, Globetronics) sectors, b) indicative of strong demand for Yong Tai’s Impression performance, c) mega construction contract awards (Gabungan AQRS), and d) Bumi Armada hoping to receive full charter rate for FPSO Kraken.

ACTION
 Our January picks continue to be Ann Joo, Bumi Armada, Gabungan AQRS,
Globetronics, Serba Dinamik, VS Industry, and Yong Tai.

ANALYSTS’ TOP ALPHA* PICKSalpha stock picks 2018
alpha stock picks 2018
Ann Joo Resources (Abdul Hadi Manaf)
A blowout 4Q17 reporting season is expected, benefitting from steel bar prices that are at ulti-year high. In Dec 17, local steel bar price increased further to RM2,633/MT (+8.1% qoq) mainly due to sharper-than-expected production cut in China during heating season.

Share Price Catalyst
 4Q17 earnings could potentially a blowout quarter.
 Significant improvement in local steel demand.
 Rise of local steel ASP to a multi-year high.

Bumi Armada (Kong Ho Meng)
2017 is set to be a turnaround year for the group, with earnings set to pick up by 1Q18 when Bumi Armada potentially receives almost the full charter rate recognition from both Olombendo and Kraken. The offloadings of Kraken onto three tankers (at implied 15k bpd) is positive as it shows Kraken production is ongoing. It needs a higher frequency of offloads to imply a real recovery in production. We also see the possibility of TGT1 extension.

Share Price Catalyst
 Conclusion of final acceptance of Kraken and Olombendo by early-18.
 Recovery of OMS utilisation and rates.

Gabungan AQRS (Ridhwan Effendy)
The group is armed with an outstanding orderbook of RM2.8b. In 1H18, we are expecting positive newsflow from potential contract wins that the group is gunning for. This includes high-profile construction jobs in the likes of East Coast Rail Line (ECRL) and the Sabah portion of the Pan Borneo Highway (PBH). Also, the group’s precast manufacturing division is poised to benefit from the Sabah PBH, as it owns one of the largest precast manufacturing facilities in Sabah together with the Sabah Economic Development Corporation.

Share Price Catalyst
 Positive contract newsflow by 1H18.
 Concrete premix production associate securing a substantial contract

Globetronics (Yeoh Bit Kun)
We remain upbeat on Globetronics’ prospects and expect 4Q17 to be the strongest quarter for the year, driven by higher production volume for sensor products as well as margin improvement due to better economies of scale. There could be earnings upside to our 2018/19 forecasts due to: a) commercialisation of developing products (particularly 3D imaging sensors), and b) strong demand for gesture sensors (due to end-client’s bundling strategy).

Share Price Catalyst
 Commercialising one or two new sensors in 2018-19, which are currently under co- development with the client, could significantly lift our earnings forecasts.

Serba Dinamik (Kong Ho Meng)
Earnings growth to trump expectations due to a combination of yearly new contract wins (RM2b) and the high renewal rate (>80%) of its existing orderbook. We expect Serba to announce more contracts as it embarks on its asset ownership strategies. Our earnings forecasts are above consensus.

Share Price Catalyst
 Higher-than-expected new orderbook wins.
 Lower-than-expected costs, especially on tax (Serba is expected to pay IRB tax claims from 3Q17 to early-19).

VS Industry (Fong Kah Yan)
In addition to several assembly lines for box-build products that have commenced production since Nov 16, VS Industry began building three additional assembly lines in 4Q17. Key catalyst in the medium term will be the gradual capacity fill-up at its new plant (which can accommodate up to 12 assembly lines) upon completion in mid-18 on the back of potential contracts from new customers.

Share Price Catalyst
 Securing new contracts from existing or new customers.
 Securing new contracts for its China ops via 43.5%-owned VS International Group (VSIG).

Yong Tai (Ridhwan Effendy)
Tourism-related developer Yong Tai will soon open the critically-acclaimed Impression Series theatre in Melaka, the first outside China, which could generate net profit of >RM60m p.a. in a full year of operations. To further tap on the success of the Impression Melaka show, Yong Tai will develop the land around the theatre. It will also undertake niche developments to diversify earnings growth drivers. We are also optimistic on the viewership of the performance, given the success that it has had in China.

Share Price Catalyst
 Positive construction progress of the Impression Melaka theatre.

souce: UOBKayHian – 08/01/2018

http://klse-online.blogspot.com/2018/01/alpha-stock-picks-2018-smashing-start.html