Jul 26, 2017

Technical Comments: Bargain Axiata

Any price dips on Axiata towards the lower Bollinger band (RM4.56) should be attractive to bargain for rebound upside to RM4.90, with the 38.2%FR (RM5.15) and 50%FR (RM5.48) acting as tougher resistance. Crucial support is from the 29/11/16 low (RM4.11)

Axiata Daily Chart:axiata chart

technical data axiata

source: TA Securities – 26/7/2017

The Group's mobile subsidiaries and associates operate under the brand name ‘Celcom’ in Malaysia ‘XL’ in Indonesia ‘Dialog’ in Sri Lanka ‘AKTEL’ in Bangladesh ‘HELLO’ in Cambodia ‘Idea’ and ‘Spice’ in India ‘M1’ in Singapore and ‘MTCE’ in Iran (Esfahan).

Jul 25, 2017

Construction Sector – Malaysia

, ,

Railway-related Jobs To Dominate In 2H17

We expect construction job awards to gain momentum in 2H17 after the lull period in 1H17 due to seasonal factors. In the near term, key events to look out for include: a) awards for the RM9b LRT3, b) groundbreaking of the RM55b ECRL, and c) tabling of the pre-election Budget 2018 in October. We prefer infrastructure construction beneficiaries, including Ekovest, Gamuda and IJM Corporation. We also downgrade Kerjaya Prospek post the share-price rally. Maintain OVERWEIGHT.

UOBKH’s construction universe outperformed FBMKLCI. Ytd, our construction universe recorded 25.7% growth against the FBMKLCI’s 7.2%. The key performers in the sector include Kerjaya Prospek, Ekovest and Sunway Construction. Kerjaya continues to be on an uptrend given its continuously strong earnings growth that is supported by commendable margins.
Ample re-rating catalysts. First, we believe the Economic Transformation Programme (ETP) would continue to support newsflow momentum and contract awards in the short to medium term. Second, most of the companies under our coverage still have sizeable orderbooks that can sustain earnings going forward. We expect newsflow for a few notable mega projects to excite the sector, such as: a) groundbreaking of the ECRL, b) awards for the RM9b LRT3 job, and c) subcontracting works for the Gemas-JB double tracking job. Cumulatively, these three projects could provide the sector with at least RM70b in construction jobs.

Maintain OVERWEIGHT; prefer beneficiaries of infrastructure spending. Companies with a good track record in earnings delivery and strong orderbook replenishment are our preferred picks. These include Ekovest (BUY/Target: RM1.55), Gamuda (BUY/Target: RM6.00) and IJM Corporation (BUY/Target: RM3.95). From a risk-reward perspective, we think Ekovest would outperform in the near term, with its key catalyst being the signing of its DUKE2A concession agreement by year’s end. Gamuda’s catalyst would be further contract wins, which would support its multi-year earnings growth target. For East Coast plays, both IJM Corp (BUY/Target: RM3.95) and Gabungan AQRS (NOT RATED), have significant business exposure in the region, particularly in construction and infrastructure (IJM’s Kuantan Port). We like Gabungan AQRS for its turnaround story, where its construction orderbook is at its all-time high with margins expected to be significantly above the historical record.
Take profit on Kerjaya Prospek post 66.4% returns ytd. We downgrade Kerjaya Prospek to HOLD with an unchanged target price of RM3.69, based on 14x 2018F PE. At current levels, we think the market has priced in the growth potential and anticipated contract wins, which may be forthcoming in the near term. Nevertheless, there could be potential upside to our fair value should the company secure more than RM1b in new orders this year (ytd wins at RM380m). Since our initiation back in Jan 16, Kerjaya’s share price has

malaysia top construction stocks

RM12.9b worth of jobs awarded in 1Q17, more to come in 2H17. To recap, 2016 was a strong year in terms of new job orders, which topped RM176b, driven by the rollout of the MRT Line 2 and Pan Borneo Highway contracts. According to the Construction Industry Development Board (CIDB), total job orders in 1Q17 totalled RM12.9b, driven by the private sector. Historically, job orders tend to be seasonally stronger in 2H due to festivities in the early part of the year.
Pre-election budget tabling should provide further catalysts for the sector. The tabling of Budget 2018, which would be the last budget before the general elections, will take place on 27 Oct 17. Quoting the Prime Minister, the upcoming budget will continue to have “people-centric” projects, which would include the development of good public transportation systems, signalling that the spending on infrastructure projects is expected to continue in the medium term.
Railway-related projects to take the limelight. For the next 3-4 years, railway jobs would continue to dominate the sector’s growth. This would be driven by LRT3, ECRL, HSR and potentially MRT Line 3. In the near term, the key events to look out for include the awarding of the RM9b LRT3 project (possibly in the next 2-3 months), groundbreaking of the ECRL (expected in early-August) and the opening of the tender for the AssetCo for the HSR (expected by this year-end).
● Enough jobs to sustain earnings for next 3-4 years. These mega infrastructure contracts are large enough to support earnings growth in the sector for at least another 3- 4 years. Also, most of the key companies in our universe still have ample orderbooks, which can still sustain earnings should the awarding of these projects be delayed. We expect construction companies under our coverage to report market-weighted average EPS growth of 15.2% in FY17-18, underpinned by healthy construction books. So far, outstanding orderbooks for companies stand at healthy levels of RM2.5b-13.2b each, implying 2.6-14.0x of their respective last financial-year revenues.

status of malaysia infrastructure
● Contract awards for major infrastructure projects.

● Key risks include: a) potential cut in government spending, and b) delay of project surged 114.8%.

source: UOBKayhian – 25/07/2017

Jul 20, 2017

Technical Picks From CIMB Top Picks For 2nd Half Of 2017

Gamuda (GAM)
gamuda chart
The LT wedge pattern for Gamuda (GAM) is still intact and the price movements in the 1H2017 were in line with what we expected. After breaking out above RM4.94, the stock is now on its way higher towards its adjusted Fibonacci target of RM5.65-5.80. As long as prices continue to stay above the wedge support (currently at RM5.20), we expect the stock to reach its Fibonacci target band in 2H2017. Anything below RM4.53 would be very negative for GAM.
IHH Healthcare (IHH)
ihh healthcare chart
The LT uptrend for IHH Healthcare (IHH) is still intact as prices remained above its support trend line from its debut 2012. Furthermore, the fall from its all-time high of RM6.73 looks corrective, where a bullish flag may have taken form. As long as prices stay above RM5.15, the rising support trend line, continue to look higher for the stock in the coming months. Taking out RM6.27 would boost the idea that the next wave higher for IHH to above RM6.73 is underway. The next resistance is at RM7.00 followed by RM7.19, the 1.382x Reverse Fibonacci target.
Bumi Armada (BAB)
bumi armada
Bumi Armada (BAB) broke out of its bullish wedge pattern in 1H2017 and has stayed above the wedge resistance (now support) since then. The stock may be trying to build a base above the wedge resistance and RM0.665. As long as RM0.665 holds up, we think that there is still room on the upside for BAB. Taking out RM0.825 would indicate that the stock is likely heading towards the psychological RM1.00 mark next. If momentum is still strong above RM1.00, prices may even reach RM1.15-1.30.
DRB-Hicom (DRB)
DRB-Hicom (DRB) is currently testing its historical resistance at RM1.90. The sequence of higher highs and higher lows since the RM0.92 swing low suggests that the stock’s uptrend is intact. DRB needs to stay above RM1.55 for its longer-term uptrend to continue in the coming months. Taking out RM1.90 would signal that prices could head higher to test the multi-year resistance trend line at RM2.20-2.25 next. Moving firmly beyond this trend line is very positive for the stock.

MYEG Services (MYEG)
The LT uptrend for My EG Services (MYEG) is still intact. Prices are now sitting just above its wedge support (RM2.03) and the odds continue to favour the bulls for now. A move to new highs could be next for MYEG, with the next target being the wedge resistance at RM2.55-2.60. Closing sharply below RM2.03 could potentially signal that a change in trend may be occurring.
Source: CIMB Research -  16/07/2017

Jul 13, 2017


Top 10 Bigcap Stock Picks. Top 10 Small Midcap Stock Picks

Portfolio & stocks selection criteria. While we remain an advocate to portfolio exposures with a combination of stocks in the following order of preference (high to low): (i) inherent earnings quality, (ii) attractive valuation, and (iii) Growth at Reasonable Price (GARP) strategy Nonetheless, we are also mindful that the risks associated with these return expectations are also elevated due to the geopolitical risks which have a big influenced in market sentiment.

Changes to Top 10 list. We made four changes to our current list of Top 10 stock picks due to the following reasons:
- Kossan, Maybank and CIMB were removed due to their price run up during Q2 2017.
- Meanwhile, Gas Malaysia is relegated due its slower price appreciation todate and that there are other counters that an even bigger upside.

• In place of the above relegated stocks, we introduce SP Setia, AirAsia, Petronas Dagangan and Public Bank to our Top 10 list.   

Top 10 picks of bigcap stocks.

Below is a list of 10 bigcap stocks that fit the above mentioned criteria, which come from various sectors within our stock universe

- Malaysian Resources Corporation Berhad (BUY, TP: RM2.08). We are steadfast on the prospect on MRCB’s earnings estimates moving forward for FYE17 from (1) picking up of construction activities for Cyberjaya City Centre and Kwasa Damansara. (2) Strengthening of its balance sheet through rights issue that could possibly reduce its total debt of RM3.7bn to RM2.1bn (minimum scenario). (3) Potential rolling out of infrastructure projects under the National Development Planning (NDP) which reiterates the government commitment to boost rural and urban connectivity.

- Bermaz Auto Berhad (BUY, TP: RM2.50). Key catalyst: (1) Attractive dividend yield of 8.6% underpinned by net cash which accounts for 12% of market. (2) Value unlocking from the listing of BAuto Philippines (BAP). Current market cap attributes practically no value to BAuto’s stake in BAP relative to the 16x indicative IPO valuation and historical sector valuation of 12x (for Malaysian autos). (3) A more than doubling in associate earnings contribution to group (via 30%-owned Mazda Malaysia SB and 29%-owned Inokom) given a massive export market expansion. (4) Launch of the new CX5 and new CX9 which will drive a recovery in volumes and margins.

- Affin Holdings Berhad (BUY, TP: RM3.30). We continue to be encouraged by the Group’s future prospect and we believe that the Group is building its niche and this will ensure profitability based on (1) selective and cautious approach towards asset and loans growth, (2) believe that the Group will be in a good position to take advantage of any upswing in conditions with transformation instituted at Affin Bank and Affin Islamic Bank, and (3) income growth momentum will be maintained given the Group’s proactive management of its assets and liabilities.

- SP Setia Berhad (BUY, TP: RM4.13). We like SPSETIA due to: i) its plan to achieve FBMKLCI status is now fast track to 2018 (from 2020), ii) attractive price for the I&P deal, as we estimate that the market value of its landbank is RM6.15b (against its purchase price of RM3.65b) and iii) good dividend yield of 5.1%.

- AirAsia Berhad (BUY, TP: RM3.94). Airasia remains our top aviation sector predicated on: 1) stable demand growth with conservative Available Seat Kilometers (ASK) expansion of +10%; 2) monetisation of Asia Aviation Capital (AAC) that could potentially lead to special dividends; 3) further consolidation of all individual erating airline companies under the AirAsia Group could provide better clarity on combined performance of all these companies as opposed to Malaysia AirAsia.

- Tenaga Nasional Berhad (BUY, TP: RM16.80). Key catalysts: (1) Higher dividend catalyst on the back of an under-geared balance sheet and capital optimisation exercise (2) Overseas expansion provides scope for stronger growth in the mid-term (3) Strong earnings visibility post-ICPT implementation (4) Tenaga is a liquid proxy to the GDP growth outperformance and stronger trade, but share price has yet to move meaningfully relative to the broader market

- Telekom Malaysia Berhad (BUY, TP: RM7.77). We are comforted by the fact that UniFi’s customer base and ARPU continue to increase at a steady pace. Moving forward, we view that the progressive growth in TM’s broadband customer base would be further driven by the HSBB phase 2 and SUBB projects. On the mobility segment, the group’s target to launch Webe’s new prepaid plan in 2H17 remains intact. We opine that the ‘quad-play’ offering would further strengthen TM’s position in the telecommunication industry.

- Kuala Lumpur Kepong Berhad (BUY, TP: RM29.25). We opine that the company should fare better against other planters as for the Company earnings resiliency and its good FFB production growth estimated at 8% (highest among index-linked plantation stocks. It should be able to take advantage of the upcoming the pre-stocking activity ahead of Mid-Autumn
Festival should boost demand for palm oil from China from September onwards.

- Petronas Dagangan Berhad (BUY, TP: RM28.00). Key catalyst: (1) Petronas’ committed capital expenditure plan focusing on downstream oil and gas segment. (2) Opex to maintain at such levels in-line with the company’s Commercial Excellence initiatives. (3) the downstream utility and retail fuel segment is expected register commendable year-over-year earnings growth, offer above risk- free rate dividend yields and acceptable capital upside.

- Public Bank Berhad (BUY, TP: RM7.57). We continue to like the Group’s ability to achieve a robust loans growth whilst maintaining its asset quality. We also like the fact that the Group was able to manage its funding cost well which led to improvement in NIM. As a result, we expect that any NIM compression will continue to be manageable for the Group.

Top 10 Stock Picks

bursa malaysia top 10 picks

Top 10 Small Midcap Stock Picks

- Tune Protect Berhad (BUY, TP: RM2.18). Our positive is on the back of the Group’s various ongoing initiatives for product innovation, customer oriented and channel, and (2) Big tie up between Tune Protect and AirAsia is set to boost earnings moving forward.

- Dabochi Berhad (BUY, TP: RM3.02). Key Cataysts: (1) Indonesia and Myanmar to drive growth, It is securing new clients and orders, and closing in operational gaps and (2) Improving margins by cost past through mechanism to its major customers and operational cost reduction through better wastage control and operational efficiency.

- Amanah Raya REIT Berhad (BUY, TP: RM1.15). We recommend to company for (1) for its education property exposure (42% gross rental contributed from education properties) where rental reversion is typically resilient at 5-7%. (2) Prospect for asset management of ARREIT is positive following the entry of Kenedix Inc. as a substantial shareholder in December 2016. (3) Attractive dividend yield at 5.7%.

- Ta Ann Berhad (BUY, TP: RM4.30). We recommend the company due to (1) its plantation division earnings growth should remain strong due to high FFB volume growth expectation at 10%. (2) Its timber division is expected to remain profitable due to the support from high export logs price.
(3) It is a key laggard compared to its peers and trailed the KL Plantation Index despite its decent fundamentals.

- Hock Seng Lee Berhad (BUY, TP: RM2.00). Key catalysts: (1) Earnings make a comeback during the 2QFYE17-3QFYE17 as HSL would be able to recognize billings from Pan Borneo project. (2) HSL’s key competency in sewerage and wastewater engineering will anchor its future earnings prospect due to the strong need of efficient wastewater and sewerage connection in Sarawak. (3) HSL’s land banks are strategically located to be developed under the public housings such as Projek Perumahan Rakyat (PPR) and Projek Perumahan Penjawat Awam (PPA1M).

- Tasco Berhad (BUY, TP: RM2.91). We see positive impetus for Tasco in FY18 with acquisition of cold chain logistics assets. This would bode well for Tasco, as it is propelled from having nil cold chain assets to a market leader in the segment. Apart from that, a nascent recovery in international trade growth and an improving manufacturing sector would augur well for the company

- Muhibbah Engineering Berhad (BUY, TP: RM3.24). We reiterate our recommendation for the company due to the quality orderbook of RM1.86bn, or approximately 36 months (3.5x construction revenue cover) backed by recurring cash flow for its concession asset in Cambodia which has contributed 5-year median of 24.0% percent to its operating income.

- United U-Li Berhad (BUY, TP: RM4.88). Key catalysts: (1) Management targets to improve exports contribution from 20% to at least 30% in the next two years. (2) Modernising integrated facilities further with potential to expand operations at its new Nilai plant (3) As cables and electrical components are essential parts of a building, U-LI stands to benefit from the slew of infrastructure projects domestically and regionally.

- Tiong Nam Berhad (BUY, TP: RM2.08). We like Tiong Nam for its market leading position in the integrated logistics industry. Meanwhile, an IPO of its logistics assets into a REIT could provide immediate rerating catalyst for the stock, giving rise to the potential of special dividends.

- Spritzer Berhad (BUY, TP: RM2.83). We like Spritzer for its i) resilient earnings due to its defensive business model, ii) strong position as market leader in Malaysia’s bottled water industry with over 40% market share and iii) strong balance sheet with net cash position.

Top 10 Small Midcap Stock Picks

small cap top 10 picks

source: MIDFResearch - 11/07/2017

Jul 10, 2017

Malaysia Technology Stocks: Be Selective


We expect local tech companies, particularly those with high sales exposure to US smartphone brands, to deliver strong report cards from 2Q17 onwards. This could include upstream testing equipment players such as MMSV and Elsoft in 2Q17, followed by OSAT vendors from 2H17. However, given the sharp share price run-up within the sector, we advocate investors stick to companies with multi-year growth legs while the near-term good results provide trading opportunities in small-cap companies. Maintain OVERWEIGHT. Top pick: Globetronics.

malaysia technology stocks comparison

 ■ Local supply chain for US smartphone brand is poised to record strong earnings from 2Q17 onwards... The much anticipated launch of a new-generation smartphone by a US premium brand in 3Q17 is expected to have the relevant Malaysian testing equipment makers and outsourced semiconductor assembly and test (OSAT) providers reporting a strong set of results from 2Q17 onwards. Particularly, players that have high revenue exposure to this US end-client due to their sole supplier positions, such as upstream LED-related testing equipment makers MMS Ventures (MMSV MK, non-rated) and Elsoft (ELSR MK, non-rated), are expected to record superb results in 2Q17. OSAT vendor Globetronics (GTB MK, BUY) is on track to record strong earnings growth in 2H17 due to its sensor products. Inari, which has a dominant position on RF, is also expected to see a stronger 2H17.
 ■ ...despite rumours of a potential delay in the availability of the OLED screen model. Market consensus expects the US smartphone brand to stick to the traditional launch period of September for the roll-out of its three new flagship models (4.7-inch screen, 5.5-inch screen and 5.8-inch OLED screen) but some believe that there will be limited availability for the OLED model or a delay till mid-October/November (due to a delay in OLED production ramp-up). Despite the potential of a slight delay, we do not expect this to have an earnings impact on the relevant Malaysian vendors. Upstream players have delivered a majority of the orders in 2Q17 while certain OSAT players are loaded with more-than-expected orders and capacity expansion is on the way.

 ■ Maintain OVERWEIGHT. Top pick: Gloebtronics. Local technology companies recorded a very nice share price run-up ytd (see overleaf side bar), with much of the rally fairly reflecting their outlooks. Among Malaysian vendors for the US smartphone brand, we see trading opportunities for the small-cap testing equipment makers on anticipation of the good upcoming quarterly results. Over the longer-term, we prefer OSAT companies which have more stable earnings with multi-year growth legs. Valuation-wise, OSAT companies are more attractive after the small-cap companies’ sharp run-up. Maintain OVERWEIGHT on the sector. Top picks: Globetronics.

malaysia techology stocks performance

 ■ MMSV’s good results over the near term could provide trading opportunities. MMSV, which derives about 50% of its revenue from the smartphone segment, is expected to achieve 20-30% revenue growth in 2017, mainly on the back of its customised LED visual inspection solutions for its US end-client’s upcoming new smartphone models. Given that second quarter is seasonally stronger for the smartphone segment and the new testing equipment fetch higher selling prices, MMSV is poised to deliver one of its best quarters (if not the best) in 2Q17 (historical peak was in 2Q16 which reported RM20m revenue with RM5.7m net profit). Management shared that its existing margin is sustainable in 2017. This implies MMSV trades at 20-21x 2017F PE, on the assumption of 20-30% sales growth. While its valuation is not particularly attractive, its good results for the near-term could trigger trading opportunities.
 ■ MMSV: Expecting a weaker 2H17, dragged by non-smartphone segment. MMSV’s 2H17 could be weaker hoh due to the absence of orders from the more lucrative smartphone segment. MMSV’s other key areas of exposure are to the automotive, general lighting and semiconductor industries, which each made up 21%, 7% and 13% of its 2016 revenue respectively. While we are positive on MMSV’s automotive segment, but its revenue growth is lower than that of its smartphone segment due to a slower replacement cycle and a longer qualification period.
 ■ Globetronics: Stronger 2H17. Globetronics is ramping up its production volume on new light and gesture sensor products and is planning a Phase 2 capacity expansion to meet end-clients’ demand. We expect a strong net profit CAGR of 76% in 2016-19, and there could be potential earnings upside in 2018-19 due to: a) commercialisation of products under development (particularly 3D imaging sensor); and b) strong demand for gesture sensors (due to end-client’s bundling strategy). We expect Globetronics’ 2Q17 net profit to improve but it will still be an unexciting quarter as the light sensor’s mass production only started in June and loading volume is yet to normalise. We estimate 2Q17’s net profit to be in the range of RM7m-8m (1Q17’s RM6.0m, 2Q16’s RM5.5m) but will improve to
RM20m-25m per quarter in 3Q-4Q17.
 ■ Testing equipment makers’ earnings visibility is less predictable. Overall, we view that the earnings outlook for equipment players (with high concentration of a few key clients) is uncertain compared to OSAT’s. The outlook is highly dependent on whether the end-clients would need to replace existing equipment or simply need modifications on existing equipment to support new product launches. Testing equipment makers typically
have 3-4 months of order visibility.

source: UOBKayHian 10th July 2017

Jun 15, 2017

Malaysian Corporates With Exposure To The UK

Malaysia Market Strategy. YTLP, YTL and EWI are most exposed to the UK

● UK’s hung parliament increases political, Brexit and Sterling risks.
● Over three working days, the Sterling has weakened 2.6% against the MYR to RM5.3887. YTD, the Sterling has weakened 2.2%.
● According to CS Global Strategist Andrew Garthwaite in his report entitled “UK election: thoughts on a hung parliament”, Sterling is the critical driver (pharma, consumer staples performing the best when sterling weakens; retailing, banks and real estate the worst).
● There are just a handful of Malaysian companies with exposure to the UK, mostly via the property and utilities sector. YTL Power, YTL Corp and EcoWorld International profitability appear to be the most exposed to the UK.

Figure 1: Close correlation between UK property and Sterling
uk property sterling

The UK conundrum
Following UK’s hung parliament, CS Global Strategist Andrew Garthwaite in his report titled “UK election: thoughts on a hung parliament” highlighted the following conundrum.

CS believes another election within a year is a strong possibility. The challenge is that those aged over 65 predominantly vote Conservative and many of Conservative’s policies (on social care, pensions and the winter fuel allowance) penalised them. The dilemma is that 66% of under 25s voted for Labour and 75% of under 25s votRemain in the EU referendum.ed

Brexit: Two-thirds of UKIP votes went to the Conservatives and there are around 40 committed Brexiteers in the Conservative ranks whose support the Prime Minister will rely on. This appears to limit the prospects for a softer Brexit.

: The risk of a negotiating accident (i.e. a hard Brexit without a transitional deal) has risen, but still seems to be, on balance, unlikely. Sterling is 12% cheap on PPP against the dollar, and the current account deficit has more than halved. CS believes Sterling is unlikely to weaken further from current levels.

: CS economists continue to forecast 1.4% GDP growth (consensus 1.7%) versus 1.8% in 2016. Employment lead indicators are weakening and the savings ratio is at a 40-year low.

Small caps
are set to underperform large caps as PMIs roll over. An increased prospect of a Labour government is negative for small caps (rise in tax rates, more regulation, higher wages, higher rates).

: Sterling is the critical driver (pharma, consumer staples performing the best when sterling weakens; retailing, banks and real estate the worst). CS stays underweight UK regulated utilities, London- and South East-exposed homebuilders (expensive, housing cycle rolling over and threat of increased tax), UK office REITs. CS remains overweight UK non-food retailing.

Figure 2: Malaysian corporates with exposure to the UKmalaysa exposure in UK

Malaysia’s corporate exposure to the UK
Over three working days, the Sterling has weakened 2.6% against the MYR to RM5.3887. YTD, the Sterling has weakened 2.2%. In Figure 1, we highlight Malaysian companies that have exposure to the UK, following the uncertainties and volatility over the hung parliament in the UK. There are just a handful of Malaysian companies with exposure to the UK, mostly via the property sector. YTL Power, YTL Corp and EcoWorld International profitability appear to be the most exposed to the UK. Over the past three days, YTL Power, YTL Corp and EWI’s share prices have remained resilient in light of the new risk, only falling by 1.3%, 0.0% and 2.9%, respectively.

source: Credit Suisse 14/06/2017

Jun 8, 2017

Malaysia Stocks: Alpha Picks

Prescriptions For A Lull Period
Only three out of our five BUY alpha picks outperformed the market in May 17 (FBMKLCI: -0.12%), delivering a simple average of -0.98%, while our sole alpha SELL call softened in line with the market. Despite expectations for a lull market in the near term, we expect outperformance from our June line-up of BUY picks which include Bumi Armada (new addition), Ekovest, Globetronics, Kerjaya Prospek, VS Industry and YTL Power. RHB Bank remains a conviction SELL.

Review of May picks. Only three of our BUY picks outperformed the market in May (see RHS), delivering a simple average of -0.98% (FBMKLCI -0.12%). Topping the list is Kerjaya Prospek (6.9%), followed by Globetronics (3.5%) and YTL Power (1.3%). Meanwhile, as expected, Ekovest retreated (-14.1%) from its previous month’s stellar performance, following the government’s shocking annulment of Ekovest’s sister company IWC’s (in JV with China’s CREC) stake acquisition of Bandar Malaysia. Market outperformer VS Industry also chalked a disappointing -2.5%.

Quarterly portfolio performance. We introduce three methodologies of measuring our alpha picks portfolio returns on a quarterly basis (see RHS), namely price-weighted, market cap-weighted and equal-weighted.

Our alpha list for June. BUYs are Bumi Armada, Ekovest, Globetronics, Kerjaya Prospek, VS Industry, YTL Power, while RHB Bank is a SELL.
Bumi Armada a new addition. We add Bumi Armada based on its reassuring 1Q17 results justified by new contributions from FPSO Olombendo (first oil since Feb 17) and Armada LNG Mediterrana (FSU Malta).
analyst top malaysia stockpicks

Bumi Armada (Kong Ho Meng)
 ● 2017 is set to be a turnaround year for the group. 1Q17 profits showed growth due to
maiden earnings from Olombendo and Malta. New earnings from the remaining two floating projects (Kraken and Madura) will support a stronger 2H17 performance. We also see the possibility of TGT1 extension.

Share Price Catalyst
 ● First oil announcement on FPSO Kraken by end-June 17
 ● Conclusion of final acceptance test of JV FPSO Karapan Armada Sterling III (Madura) by
 ● Recovery of OMS utilisation and rates.
Ekovest (Ridhwan Effendy)
 ● All-time high construction orderbook of RM13b would sustain its earnings delivery for the next 5-6 years. Also, the potential IPO of DUKE 1 & 2 (which could be as soon as 2018) could re-rate the stock, given the significant value (RM1.9b) vs to its market cap of RM2.5b.

Share Price Catalyst
 ● Further contract wins.
 ● Signing of the concession agreement for DUKE2A, its third highway concession.
Globetronics (Yeoh Bit Kun)
 ● We expect meaningful qoq earnings growth in 2Q17 and much stronger hoh in 2H17, driven by the maiden contribution from new light sensor (expected in May) and production ramp-up of its gesture sensor. With the contribution of these two sensors, net profit is estimated to grow 142% yoy in 2017 and reach an all-time high in 2018 (+62% yoy). Effective execution in terms of both delivery and product quality of these two sensors could be a near-term catalyst.

Share Price Catalyst
●  Commercialising one or two new sensors in 2018-19, which are currently under co-development with its client.
●  Appreciation of US dollar against the ringgit.
Kerjaya Prospek (Ridhwan Effendy)
 ● Kerjaya expects to clinch at least about RM800m worth of new construction jobs in 2017,
which we think is easily achievable given its historical orderbook win track record. Presently, its tenderbook stands at RM1.6b, which comprise mainly high-rise residential buildings and commercial property jobs.

Share Price Catalyst
 ● New contract wins, expected from end-2Q17 onwards.
 ● Valuation laggard to comparable peers like Suncon.
RHB Bank (Keith Wee)
 ● RHB Bank's proposed merger with AMMB is expected to have an immediate term earnings dilution due to potential revenue duplication and gestation period required for the various cost rationalisation initiatives to come through. Post merger, RHB Bank’s cost-to-income ratio, CASA ratio and loans-to-deposit ratio will deteriorate given AMMB’spoorer financial metrics in these areas. On a BAU basis, the group has the lowest loans-loss coverage ratio inclusive of regulatory reserve in the industry at 75% (industry: 129%). This coupled with: a) relatively low loans-loss coverage ratio of 30% for its O&G gross impaired loans portfolio, and b) RM2.6b in O&G loans under the watch list category (46% of total O&G loans portfolio) does place a significant upside risk to management’s rather benign net credit cost guidance of 25-30bp for FY17.

Share Price Catalyst
 ● Upside risk to management’s guided net credit cost of 25-30bp for FY17. Note that Maybank and CIMB, with similar O&G exposure and higher provision coverage ratios, are guiding for net credit cost of 50-60bp and 60-70bp respectively.
 ● O&G provisions and impairment may have yet to bottom out.
 ● Potential merger with AMMB is expected to have an immediate dilution to earnings while cost synergies would require a gestation period of at least 2 years.
VS Industry (Fong Kah Yan)
●  In addition to the three assembly lines for the vacuum cleaner box-built contract which are
slated to commence in FY17, we expect VS Industry to secure more contracts from their key customers in FY18 on increasing demand for existing products as well as new product launches notably in the beauty care segment.

Share Price Catalyst
 ● Securing new contracts from existing or new customers.
 ● Sharp appreciation of US dollar against the ringgit.
YTL Power (Chong Lee Len)  ● YTLP provides a 6.5% sustainable dividend yield anchored by defensive cash flow from Wessex Water. Key re-rating catalysts include new power plant projects between 2020- 2021, which are: a) 554MW Jordanian power plant, and b) 80% equity stake in 1,320MW coal-fired Indonesian power plant.

Share Price Catalyst
 ● Positive newsflow on the financial close achieved at PT Jati.
top stocks valuation
source: UOBKayHian – 5/6/2917