AFTER a brutal 2018 in which equity markets took a turn for
the worse, market watchers turned more cautious with their outlook
for the first half of 2019. Dark clouds of uncertainty
continued to loom over earnings prospects and global investor interest.
The Edge Financial Daily picked its portfolio based on
various themes, including several stocks that have been battered down
and now command more attractive valuations. While economic conditions
are seen to potentially worsen next year, growth driven by domestic
private consumption is another factor that could support corporate
earnings. Malaysia has also been highlighted as an early beneficiary of
the US-China trade war, such as its technology and manufacturing
sectors, if trade talks do not deteriorate.
1. AirAsia Group Bhd
At a price-earnings ratio (PER) of 3.48 times, AirAsia
Group Bhd is currently one of the cheapest stocks on Bursa Malaysia.
After having touched a record RM4.60 in early February, it fell steadily
to as low as RM2.38 in late October. The stock closed 2018 unchanged at
RM2.97 on Monday.
Rising fuel prices, which sent AirAsia’s core net profit
for the nine months ended Sept 30, 2018 (9MFY18) tumbling some 33% to
RM805.08 million, may have been one of the reasons investors avoided it
last year. In fact, CIMB Research downgraded the stock to “sell” after
it posted a disappointing set of results for 9MFY18. A weaker ringgit
against the US dollar compounded the low-cost carrier’s woes.
That being said, shareholders enjoyed a bumper dividend of
40 sen per share from AirAsia after the third quarter due to the group’s
disposal of its stake in online travel agency Expedia and its leasing
unit, Asia Aviation Capital Ltd. The carrier is expected to continue
paying dividends as over 60 sen per share were initially estimated to be
disbursed from the billion-dollar disposal.
On top of that, the price of Brent crude oil has been on a
downward trend since October 2018, to below US$60 (RM247.80) per barrel
“We believe that jet fuel prices will follow suit, and
AirAsia and AirAsia X Bhd will be able to take advantage by hedging more
on the declining trend of oil price[s]. As such, we expect these two
airlines will be able to reap the benefit in 2019,” MIDF Research said
in its 2019 strategy report dated Dec 17, 2018.
MIDF Research is one of the 14 out of 20 analysts covering
the stock that is bullish on AirAsia’s prospects, according to Bloomberg
“[Despite the unfavourable fuel price environment],
AirAsia’s short-haul business model proved to be defensive with [its]
earnings before interest and tax margin standing close to 20% during the
period,” the research house said.
On top of that, MIDF Research does not expect the new
departure levy effective June this year to be a strong dampener on
travellers, but to encourage more travel within Malaysia instead.
“Sensitivity towards increases in passenger service charges
for international destinations has always been historically minimal,”
the research house said.
Also, AirAsia has planned to expand capacity by adding 10
fuel-saving aircraft to its fleet in financial year 2019 (FY19) on top
of a planned increase in international routes.
The group’s recent RM3.22 billion sale and leaseback of 25
aircraft to US-based private investment firm Castlelake LP was also
viewed as a positive development.
“The proposed disposal concurs well with AirAsia’s
digitalisation efforts,” MIDF Research said in a Dec 26 report,
highlighting that this will raise the group’s cash pile and result in
annual savings, which will help partially offset rental expenses.
2. FGV Holdings Bhd
FGV Holdings Bhd seems to be an unlikely choice for a stock
pick, given the bout of bad news surrounding the global agri-business
giant last year.
But TA Securities chief investment officer Choo Swee Kee
opined that FGV had suffered enough in the past year and is now on the
path of redemption.
“It has gone through weak management, poor risk control,
declining crude palm oil (CPO) prices, bad acquisition [decisions] and
recently a substantial write-off to the tune of almost RM800 million.
“With FGV being government-linked, new management and
better policies have been put forward to turn the company around. It is
critical the government gets it right this time as this may have
implications for thousands of Felda settlers. Investors’ expectations
are low and any sign of improvement will be taken as positive,” he told
The Edge Financial Daily.
For the nine-month financial period ended Sept 30, 2018
(9MFY18), FGV reported a net loss of RM871.15 million, compared to a net
profit of RM80.49 million a year ago, largely due to impairment losses
of RM798 million. The bulk of the impairment stemmed from goodwill on
the acquisition of Asian Plantations Ltd.
Year-to-date, CPO prices, which play a significant role in
FGV’s plantation business, had declined by 21% to RM1,903 per tonne on
Dec 26, 2018.
Choo noted a reprieve for FGV’s current depressed share price as the value of its assets and land.
“FGV is trading at a [more than] 30% discount to its net
tangible assets. It owns about 350,000 hectares of plantation land,” he
Choo views FGV as a recovery play, and has a “buy” call on the stock, with a target price (TP) of RM1 per share.
FGV shares lost 60% or RM3.96 billion of its market value
in the past year. It closed at 71.5 sen on Monday, with a market
capitalisation of RM2.61 billion.
3. Serba Dinamik Holdings Bhd
Last year, Serba Dinamik Holdings Bhd was one of only two
gainers in The Edge Financial Daily’s portfolio of top picks. The oil
and gas solution’s provider remained a bright spot on Bursa despite
volatility in both the equity market and oil prices in 2018.
The group’s share price has maintained its upward climb
since its listing on Bursa in February 2017 at RM1.53. As at Dec 31,
2018, the counter had closed at RM3.78, up 17.4% over the past year and
more than double its listing price.
That being said, analysts are still upbeat on Serba
Dinamik’s prospects. Ten Bloomberg analysts with an eye on the stock,
all recommended Serba Dinamik as a “buy”, with an average 12-month TP of
“Prospects to grow its engineering, procurement,
construction and commissioning segment remain promising, with ample
hydropower and utilities projects up for grabs,” said Affin Hwang
Capital in a report on Dec 26, 2018.
The group’s earnings growth is expected to be driven by its
Terengganu water treatment plant as well as its overseas ventures, the
research firm said. These include a 30-megawatt power plant in Laos, a
contract with New Thunder Technical Services in the United Arab Emirates
and a chlor-alkali plant the group is building in Tanzania via a joint
On Dec 10, 2018, Serba Dinamik said it targets to achieve
an order book of RM10 billion by end-2019. On top of that, a more
bullish outlook for Petroliam Nasional Bhd’s 2019-2021 downstream plant
turnaround activities could potentially boost the group’s contributions
from Malaysia, said Affin Hwang Capital.
Serba Dinamik recorded a 21.4% increase in net profit to
RM278.61 million for 9MFY18 on the back of strong growth in its
operation and maintenance activities. Revenue was up 20% year-on-year at
RM2.31 billion for 9MFY18.
4. Kelington Group Bhd
Kelington Group Bhd serves industries requiring ultra-high-purity gases and chemicals in specialised applications.
TA Securities’ Choo said the barrier to entry is rather
high in industries where Kelington serves as the provider, so one would
need to have a good safety track record and trust among clients.
“We like Kelington as it has a proven business with
multinational clients. The group’s financial year ending Dec 31, 2020
earnings growth will come from its new [liquid] carbon dioxide plant [in
Kerteh, Terengganu], with a capacity of 50,000 tonnes. [The] break-even
capacity is estimated at 30% and the company already has unofficial
take-up of 30% to 40% for its capacity.
“Conservatively, we target [for Kelington’s] share price to
grow 25%, mirroring its earnings growth,” he told The Edge Financial
The group also has a growing clientele in China, having
clinched several contracts for ultra-high-purity gas works from global
seminconductor giants there.
“Made in China 2025 is a key initiative to significantly
increase [the] manufacturing capacity of memory chips and integrated
circuits. This initiative has become even more urgent to China given the
current trade war with the US.
“Therefore, we believe Kelington is set to benefit from
this massive build-up of capacity regardless of [the] global outlook,”
In a Nov 23, 2018 note on Kelington, RHB Research analyst
Jeffrey Tan concurred that the new Kerteh plant’s commencement, slated
for the third quarter of 2019, should provide the group with an
additional RM5 million revenue uplift in 2019 and RM20 million in 2020.
“Management expects its industrial gas business to generate
about RM1 billion in revenue over the plant’s lifespan of 15 to 20
years, which could translate into a revenue of RM50 million per year
beginning 2024,” said Tan.
Tan has a “buy” call on Kelington, with a TP of RM1.41, a
20.6% upside to Kelington’s share price at RM1.12 on Monday, with a
market capitalisation of RM298.18 million.
5. Bermaz Auto Bhd
Although Bermaz Auto Bhd (BAuto), the distributor of Mazda
cars in Malaysia, enjoyed record-breaking earnings for the first half of
financial year ending April 30, 2019 (1HFY19), the group’s share price
has lagged behind.
Its share price has slipped three sen or 1.4% in the past year to RM2.15 on Monday.
This may have been because following a boom in sales during
the tax holiday between June and September 2018, leading to a tripling
of net profit to RM124.2 million for 1HFY19, BAuto recorded a dip —
reflecting the implementation of the sales and service tax on Sept 1.
The car distributor has forecast continued challenges for
FY19, citing a competitive trading environment, a weak ringgit and
cautious consumer sentiments on the back of economic uncertainty.
Despite this, BAuto said the bookings it had since
collected were “encouraging” ahead of the year-end festive season.
Its planned launches of the new Mazda CX-8 and Mazda 3 in
the mid- to second half of 2019 are also expected to support the group’s
strong earnings growth trajectory.
“The story of BAuto’s growth is not over yet. The
introduction of the [new models] would sustain growth in Malaysia and
reinvigorate sales in the Philippine operations,” Maybank Kim Eng noted
in a Dec 12 report.
The stock is also considered an attractive dividend play.
For 1HFY19, the group announced a total dividend of 6.25 sen per share,
doubling from 3.1 sen a year ago.
In 2018, BAuto was among the better performing stocks on
Bursa in terms of dividend yields, with a rolling 12-month dividend
yield of 6.3% as at Dec 31, 2018.
“BAuto is undervalued for its growth and dividend potentials,” Maybank Kim Eng said in its report.
Bloomberg data show all 14 analysts covering the stock are
recommending a “buy”, with a consensus 12-month TP of RM2.68.
That being said, a potential source of volatility is the
exchange rate of the ringgit against the yen, as almost 35% of BAuto’s
cost of goods sold is denominated in yen, Maybank Kim Eng noted.
6. Frontken Corp Bhd
Frontken Corp Bhd provides surface engineering services for
the oil and gas (O&G), petrochemical, power generation,
semiconductor and electronic manufacturing sectors.
The stock was a top pick among technology sector stocks by
Hong Leong Investment Bank analyst Tan J Young in his Dec 19, 2018
report on the technology sector outlook for 2019.
“Frontken remains our top pick on the back of a bullish
global semiconductor market outlook, a robust fabrication investment,
leading-edge technology, a recovery in the O&G sector and a strong
balance sheet,” said Tan.
Tan has a “buy” call on Frontken, with a TP of RM1.05.
Frontken shares had appreciated 46.9% over the past year to 70.5 sen on
For the nine months ended Sept 30, 2018 (9MFY18), Frontken
reported a 67.6% y-o-y increase in net profit to RM33.57 million, thanks
to an improved performance of its subsidiaries in Taiwan, Singapore,
Malaysia and the Philippines. Revenue for the period was up 10.3% to
RM238.5 million from RM216.2 million for 9MFY17.
As of Sept 30, 2018, Frontken had a cash balance of RM119.55 million and total borrowings of RM12.83 million.
7. Kerjaya Prospek Group Bhd
Like most construction-related counters, shares in Kerjaya
Prospek Group Bhd have floundered following the May 9 general election
amid rising uncertainty over projects on the local construction scene.
The group, however, has not been deterred from aiming high.
It targets to build up a RM1.2 billion order book for the financial
year ending Dec 31, 2019 (FY19), which is 20% more than its RM1 billion
target for FY18. As at Nov 28, 2018, its tender book had stood at RM1.5
Kerjaya has already gotten a good head start for its goal,
most recently bagging a RM211.6 million contract from tycoon Tan Sri
Robert Kuok Hock Nien-controlled PPB Group Bhd to construct a mixed
development project in Petaling Jaya.
“We believe that Kerjaya is the least affected contractor
in town due to its zero exposure to government-related jobs as all of
their construction jobs are from the private sector,” said Kenanga
Research in a Dec 6 note.
“In the near term, we are still anticipating another
replenishment worth about RM400 million from [executive chairman and
major shareholder] Datuk Tee Eng Ho’s private property arm as they are
looking to launch a mixed development on Old Klang Road (Kuala Lumpur)
with a gross development value of RM1 billion,” it said.
Further down the road, the group stands a good chance of
winning more contracts in Penang, as more bridges may be required to
connect the island to Eastern & Oriental Bhd’s Seri Tanjung Pinang 2
Shares in Kerjaya had fallen 37% over the past year to close at RM1.15 on Monday.
8. CIMB Group Holdings Bhd
“If [foreign] funds flow back into the market, [they] will
most likely go for the big-capitalisation stocks first,” said Rakuten
Trade head of research Kenny Yee, and in such a scenario, he favours
banking counter CIMB Group Holdings Bhd.
Yee noted that CIMB was one of the component stocks of the
KLCI that was badly thrashed in 2018, adding that “the downside is
pretty limited.” However, he believes it is one of the stocks that
should outperform the benchmark index should foreign investors return
Even after an uptick over the last few trading days of
2018, CIMB was still trading at 9.59 times its earnings, below the one
standard deviation of its historical 10.5 times PER.
Its price-to-book value of 1.0693 times is also comparable
to a low of 1.2 times during the global financial crisis of 2008-2009,
Maybank Kim Eng pointed out.
Rakuten Trade’s research team opined that the banking
sector as a whole is expected to drive growth among KLCI constituent
stocks next year.
Potential risks to CIMB’s share price include shareholding
changes, especially as Khazanah Nasional Bhd, which holds the largest
stake of 26.8% in the banking group, is expected to be unlocking value
of some of its assets next year. However, there could be a potential
upside to the stock given that Khazanah will not be disposing of its
stakes at “fire-sale prices”, Maybank Kim Eng noted.
Meanwhile, Yee does not believe potential changes at the
helm of CIMB would have much impact on the day-to-day business of the
Other positives for CIMB include the outlook for its
Indonesian operations amid falling credit costs and a potential
repricing of loans after recent rate cuts, noted Maybank Kim Eng in its
2019 strategy report.
9. Yinson Holdings Bhd
Despite uncertainty over crude oil prices, floating,
production, storage and offloading (FPSO) service provider Yinson
Holdings Bhd is still a top pick for analysts.
Maybank Investment Bank Research analyst Liaw Thong Jung
said in a 2019 outlook note on the O&G sector that Yinson is
entrenched to leverage on the booming FPSO market.
“[The] global tender pipeline is strong with minimal
competition. Securing one job win in 2019 is a near certainty, a
catalyst [for Yinson],”he said.
Yinson is also a top stock pick for UOB Kay Hian, due to its competitiveness in the international FPSO space.
“We like Yinson for its execution track record, and as it
is delivering the FPSO Helang contract for the Layang field [offshore
Miri, Sarawak] in two years’ time,” the research firm said.
Nine out of 10 analysts covering Yinson have a “buy” call
on the stock, with a consensus TP of RM5.12. Yinson shares have
appreciated by 5% over the past year to close at RM4.20 on Monday.
For the cumulative nine months ended Oct 31, 2018 (9MFY19),
Yinson reported a 24.5% decline in net profit to RM177.5 million from
RM235.04 million a year ago, mainly due to a higher property, plant and
equipment impairment loss. Revenue for 9MFY19 grew by 14.5% y-o-y to
RM747.3 million due to bareboat chartering contributions from FPSO John
10. QES Group Bhd
ACE Market-listed QES Group Bhd is principally involved in
the distribution of inspection, test and measurement equipment to the
electrical and electronics and automotive industry, as well as materials
and engineering solutions to the semiconductor industry.
TA Securities’ Choo noted that QES is moving into the
manufacturing of optical inspection systems, which is a fast-growing
“As the sales of these machines improve in 2019, the
group’s profit margin should improve accordingly with the economies of
scale. QES’ outstanding order book has been growing progressively to
more than RM60 million versus the average annual turnover of RM150
million,” he told The Edge Financial Daily.
QES was listed on Bursa on March 8, with an initial public
offering price of 19 sen per share. Since its listing, its share price
had risen 13% to close at 21.5 sen on Monday.
“The group can withstand significant stress in the market
with a cash horde of RM40 million, which accounts for 23% of its current
market capitalisation. A [transfer to the] Main Market will be
forthcoming in time [for QES] and then valuations will trade in line
with other Main Market technology stocks,” said Choo.
For the cumulative nine months ended Sept 30, 2018
(9MFY18), QES reported a net profit of RM10.65 million on a revenue of
The group earlier reported a net profit of RM15.03 million
for FY17, up 58% from FY16, on the back of a 39% y-o-y growth in revenue
to RM190.94 million.