KKB ENGINEERING BHD
SARAWAKIAN companies could come under the limelight as they stand to benefit from the development plans with the state election happening this year.
All eyes will also be on the development of the RM27bil Pan Borneo Highway, which is slated for completion by 2023.
Steel fabricator and engineering services provider KKB Engineering Bhd is deemed one of the strong contenders for this mega project as it has an extensive track record in building bridges.
KKB’s expertise in steel fabrication puts it in an advantageous position to win jobs related to the manufacturing and installation of guardrails along certain stretches of the Pan Borneo highway.
Besides the highway, there is also a likelihood that KKB’s jobs pipeline will pick up due to the state’s focus on rural development, which will likely include water supply projects.
The firm’s tender book stood at RM337mil and is expected to grow.
Cushioning any possible downside is KKB’s cash pile of RM123mil as at Sept 30, 2015, which is close to 30% of its market cap of RM417.6mil. – By Ng Bei Shan
KAREX BHD
THE largest condom manufacturer in the world is all set for 2016 with the expansion of its own brand manufacturing (OBM).
The segment provides Karex with margins 10% higher than its original equipment manufacturing segment. If the company succeeds in bringing in more OBM revenue, its profit margins would increase.
Singapore and Thailand will play a part in OBM contributions next year as the company aims to start introducing the ONE brand there in 2016.
The company is also on a capacity drive with expectations to achieve six billion pieces by December 2016 and seven billion in 2017. It is currently reaching its fifth billion capacity, also fuelled by its recent acquisition of condom manufacturer Medical-Latex (Dua) Sdn Bhd.
Although Karex is currently trading at a price-earnings (PE) multiple of 43 times its earnings, analysts still see the stock performing due to favourable exchange rates, low raw material prices as well as its potential to grow its OBM segment. Three out of seven research house have a “buy” rating on Karex, with Nomura Research having the highest target price of RM5 on the stock. Three other houses have “hold” calls, while one research house has an “overweight” call on the stock. Consensus’ target price on Karex is at RM4.30.
Year-to-date, Karex shares have risen almost 84% to RM4.13. – By Wong Wei-Shen
CIMB GROUP BHD
TRADING at just below book value, CIMB Group Bhd is probably the cheapest financial institution with a regional exposure on Bursa Malaysia.
There are banking stocks that are trading at lower valuations but they do not have the regional reach such as CIMB.
Present in almost all Asean countries, CIMB’s biggest draw is its large presence in Indonesia where it derives more than 20% of its business.
But Indonesia is also the market that has dragged down the bank in the past 18 months. The deterioration of asset quality in Indonesia coupled with CIMB’s exposure to the mining sector has caused the banking group provisions for doubtful loans to rise significantly last year. This impacted its profitability.
In 2015, CIMB also undertook a manpower rationalisation programme to bring down cost. It shut down several offices outside the Asean region including the investment banking division in Australia to bring down cost.
The group’s wholesale banking division, which is a combination of its corporate banking, treasury and markets and investment banking operations, was considerably weak in 2015. It was due to CIMB’s restructuring of its operations and provisions.
The bank has embarked on initiatives to cut down its cost and the measures are targeted towards improving the bottom line. The result of the rationalisation scheme that has involved cost of some RM450mil for the first nine months of last year are expected to be reflected this year.
As for the rising non-performing loans in Indonesia, some analysts feel that the worse if over for the banking group. – By M. Shanmugam
PRG HOLDINGS BHD
A WILDCARD pick to watch out for would be PRG Holdings Bhd.
A cheaper entry could be its warrants, which at 27.5 sen is trading at a 22.22% premium to its mother share’s price of 84 sen. The warrant has a strike price of 75 sen and has a long way to go with its expiry on June 7, 2019.
New developments are taking place in PRG, the company formerly known as Furniweb Industrial Products Bhd since its executive director Datuk Seri Yeoh Soo Ann of Encorp Bhd fame stepped down from his post on Nov 30 and sold his entire 25.45 million shares or 17.47% stake in the company.
Sources have said his departure would lead to the emergence of a few new strategic shareholders. Meanwhile what is evident is that executive director Datuk Lua Choon Hann has been accumulating shares and is now the single largest shareholder of the company with an 11.05% stake or 15.99 million shares. With Yeoh’s resignation, Lua will be the new chief to steer the company moving forward.
For the third quarter to Sept 30, 2015, PRG’s net profit increased 11.43% to RM1.64mil on the back of a 32.33% increase in revenue to RM30.01mil. For the nine-month period, net profit was up more than tenfold to RM2.79mil from RM250,000 previously. Revenue was up 43.38% to RM89.28mil.
While these earnings are an improvement, the bulk of it still come from its manufacturing and furniture webbing business, which are a beneficiary of the strengthening dollar.
The stock has a market capitalisation of about RM117mil and is trading at a historical PE ratio fo 23 times. – By Tee Lin Say
PETRONAS CHEMICALS GROUP BHD
THE share prices of downstream oil and gas companies tend to rise over time.
That trend has been witnessed in the trading of Petronas Gas Bhd and Petronas Dagangan Bhd.
The same thing will happen with Petronas Chemicals Group Bhd. When it was listed its share prices in the initial period fell below its opening listed price to RM5.38 but of late has gathered speed and reached RM7.26, a rise of 35% since Aug 24, 2015.
Petronas Chemicals will grow its production volume in the years ahead. It’s production capacity will rise to 12.7 million tonnes with the Samur plant coming onstream in 2016. Already its reported that 70% of the production of that plant has been taken up.
Once Rapid in Pengerang is built, its production should rise to 16.2 million tonnes per annum. The other thing in its favour is the markets nearby Malaysia. Growth in South-East Asia is strong in countries such as Vietnam and the Philippines. In Indonesia and the rest of South-East Asia, the middle class is growing rapidly and that will mean more demand for chemicals that Petronas Chemicals is producing.
Although its valuations against global peers is high, so is its growth potential. With production set to jump and with Petronas Chemicals in a healthy net cash position of RM9.5bil which means it can afford to fund the acquisition of petrochemical plants in Rapid, this is my stock pick for 2016 and for the medium term. – By Jagdev Singh Sidhu
MALAYSIA BUILDING SOCIETY BHD
DESPITE this year’s botched three-way merger between Malaysia Building Society Bhd (MBSB), CIMB Group Holdings Bhd and RHB Capital Bhd, MBSB’s shares may well see a large appreciation in value if another merger comes to fruition.
Back in October, Bank Negara gave the go-ahead for MBSB to start merger talks with Bank Muamalat Malaysia Bhd, an exercise expected to be completed end of this month.
A potential deal would pave way for the creation of the country’s largest standalone Islamic bank with a combined asset size of about RM60bil.
MBSB, which is currently a non-bank lending firm, will be boosted by Bank Muamalat’s commercial deposits base.
Assuming a merger goes through, the enlarged banking entity could assume MBSB’s current listing status but with improved valuations.
Presently, MBSB’s stock is trading at around RM1.40 per share, or a large discount to its net assets per share of RM1.71.
With a larger asset base than that of BIMB Holdings Bhd, which owns Bank Islam, a new listed entity will command richer valuations.
By way of comparison, BIMB Holdings currently has a market capitalisation of RM5.69bil and an asset size of RM54bil as at March.
MBSB currently has a capitalisation of some RM4bil even without the backing of a deposit base. – By Afiq Isa
SURIA CAPITAL HOLDINGS BHD
SABAH-BASED Suria Capital Holdings Bhd is the only listed container and port operator that has diversified into property development, a factor that has not been fully priced into its share price.
However, it should be noted that Suria Capital’s two main property projects are taking longer than expected to take off. But it is its Jesselton Quay project, with a RM1.8bil gross development value, which makes this company noteworthy, considering that this project will ground break next-year.
Jesselton Quay’s developer and joint venture partner to SuriaCap, SBC Corp Bhd, is working on getting the final approvals for the project.
Suria Capital’s second property project with another listed developer, Gabungan AQRS Bhd, as is dubbed as the One Jesselton Waterfront project. This project will take a “look-and-see” approach before launching, depending on market demand after the necessary approvals are secured.
From this project, Suria will be entitled to RM198mil or 18% of the project’s net sale value (whichever is higher). This will be settled through a cash payment of RM31.6mil, and payment-in-kind of RM166.4mil.
Although the port business provides Suria Capital with steady cash flows and healthy profit margins, Suria Capital, which generally operates eight ports all over the state, expects only limited growth for this business in 2016, giving it a stronger reason to focus on property. – By Sharidan M. Ali
APEX EQUITY HOLDINGS BHD
NON-BANK backed brokerage Apex Equity Holdings Bhd has possibly the strongest balance sheet among its peers with a huge war chest of cash amounting to RM107mil and very minimal borrowings.
It is also one of the more efficient stock broking firms in the country.
Excluding all other income generators such as margin financing interests, dividends and underwriting fees, Apex made a net profit margin of about 9 per cent at its peak, believed to be significantly higher than most of its peers.One of the firm’s strengths lies in the good management of its kiosks located nationwide which enables its clients to conduct trades. There is also a possible merger and acquisition play for this counter this year as expectations are that the stock broking firm will see the emergence of new shareholders which should be able to add more value to it. Just to recap, the firm’s executive chairman Chan Guan Seng who is the company’s third largest shareholder has said that he is keen to sell out of the Kajang-based firm and he is now reportedly looking towards East Asia for potential buyers of his stake. Based on valuations of previous deals among local brokers where stockbroking firms were transacted at 1.1 to 1.9 times book value, a stake sale of Apex based on its current asset value could be transacted anywhere between RM1.52 and RM2.62.
In terms of shareholding, foreigners are allowed to own up to 70% equity in stockbroking firms in Malaysia.
While Chan himself has a 8.34% stake in Apex, it is understood that he is linked to other major shareholders in the firm as well.
Meanwhile, Apex has been paying out consistent dividends over the years, giving shareholders 8 sen per share which translates into a yield of 5.5% in its latest financial year. Risks of buying into Apex include a mundane stock market which is closely related to the company’s core business and no M&A deal sealed. – By Yvonne Tan
The Star - Writer's picks 2015
http://www.thestar.com.my/business/business-news/2016/01/02/writers-picks/
