Oct 20, 2011

Malaysia Selection of Stocks Outlook

Malaysia Stock picks (with target price) by ECMLibra
Economy -  2Q11 GDP growth of 4.0% y-o-y shows economy in bottoming process    2Q11 growth dented by weaker external demand and Japan supply disruption   Turnaround expected in 2H11, though susceptible to external conditions

Inflation  -  Likely to have peaked in Jul at 3.4% and has declined to 3.3% in Aug

Currency  - USD weakness and import price inflation to encourage MYR appreciation   Near term capital flight to safety and unwinding of carry trades resulted in USD gaining strength

Interest rates -  BNM likely to pause rate hike in view of deteriorating external outlook, no rate hike seen for rest of 2011.

Equity market outlook - Valuation is not demanding but recession risk not fully priced-in yet   Supported by implementation of ETP, and resilient private domestic consumption which is boosted by a people-friendly Budget 2012

Berjaya Sports Toto
(TP: RM5.20) Dividend play backed by resilient NFO business. Recently received a boost from the introduction of 4D Jackpot game variant and set to take Magnum’s market share due to higher number of outlets. 
AirAsia  (TP: RM4.78) Synergistic benefits to be reaped over the mid-long term from collaboration with MAS not only from cost savings but also from higher revenue yield arising from reduced irrational pricing of airfare Abundance of positive newsflow coming onstream in the near term such as listing of Thai and Indo associates. 

Axiata  (TP: RM5.80) A liquid big cap proxy to growth in consumption spending of emerging
markets. May surprise on the upside with dividend payments as free cash flow is improving and balance sheet is strong. Cheapest telco in Malaysia. Proposed reduction in SIM tax could boost earnings of Celcom. 

Alam Maritim (TP: RM1.11) Earnings on a recovery trend with some RM500m in new jobs secured
this year alone. Total orderbook of RM700m to bring the group back to profitability especially in FY12. Vessel demand increasing and they could see higher than expected charter rates going forward. 

Axis REIT (TP: RM2.65) Our preferred high-yield defensive pick with net dividend yield > 7%. Despite low beta of just 0.5, its acquisition track record culminated in average annual total return of more than 20% since its listing in 2005 which outperforms the benchmark FBMKLCI. Dividend is distributed on quarterly basis.

CapitaMalls Malaysia Trust  (TP: RM1.50) Poised to benefit from resilient consumer spending and positive outlook of the retail industry. CMMT currently offers an attractive FY11 net yield > 6%. Its average yield is 270 bps above the MGS, and 366 bps above the 12-month fixed deposit. Furthermore, the company recently announced the purchase of the East Coast Mall for RM330m which is yield accretive. 
Multi-Purpose (TP: RM4.00) Trades at circa 38% discount to sums-of-part valuation. Re-rating catalysts include (1) development of land bank, and (2) divestment of non-core assets e.g. stockbroking and general insurance businesses, Menara Multi-Purpose.

Parkson Holdings (TP: RM6.40) Expected to ride on strong consumption within Asia due to its exposure to the fast growing retail markets in China, Vietnam and Indonesia while Malaysia provides a stable earnings base. Parkson Holdings is also a cheaper proxy to the China retail market as compared to Parkson Retail.

QL Resources (TP: RM3.70) Long term earnings growth to be driven by 3 segments which are marine products, livestock farming and also palm oil plantation new maturities.
Seong Corporation Wah (TP: RM3.06) Laggard so far in the O&G rally. Earnings recovery already visible this year and news flow just beginning to pick up with the award of Australian pipe coating jobs. Also some growth potential from new JV in the Gulf of Mexico. 
by ECM Libra date 18 Oct 2011