After
a tumultuous 2020 following an unprecedented pandemic outbreak, the
year 2021 saw continued volatility amid various headwinds, chief of
which was still the seemingly endless pandemic threat, which saw the
emergence of new variants that sent cases surging and brought back
strict lockdown measures.
In Malaysia, there were also political uncertainties to contend with,
as well as the bout of "once in 100 years" massive floods that came
towards the year's tail end.
These battered the FBM KLCI benchmark index, which
contracted 3.67% year-on-year, to close at its decade low of 1,567.53
points on Dec 31.
Investors and analysts are now hoping for a better 2022, fuelled by
optimism about the resumption of economic activities and growth in
corporate earnings. So, what are the best stocks to have?
Below are 10 stocks that have been chosen by three local research
houses — Kenanga Investment Bank Research, CGS-CIMB Research and TA
Securities — as their top picks for the year:
QL Resources Bhd
One of the top picks of both CGS-CIMB and TA Securities is QL
Resources Bhd, which is involved in marine products manufacturing (MPM),
consumer food and integrated livestock farming. QL's share price fell
from a high of RM6.14 in May 2021, to a low of RM4.47 in November,
before ending the year at RM4.57.
Given the over 20% share price decline in the past 12 months,
CGS-CIMB said in a mid-December 2021 strategy note that QL had turned
into an attractive proxy for the expected recovery in consumer spending
in the first half of 2022.
"We believe the worst is over in 1HFY3/22, with QL expected to record
stronger results ahead. This is mainly driven by: i) higher poultry
prices to pass on the recent rise in raw material costs (which led to
margin compression in 1HFY3/22); ii) higher contribution from its MPM
operations (lifting of lockdown restrictions leading to stronger
consumer demand and higher production output); and iii) better economies
of scale.
"QL should also see higher contribution from its Family Mart
business, as QL expects to grow its total store count by 24.4% to 300 by
end-FY22F. We also expect consumer footfall to improve in tandem with
the lifting of lockdown measures," CGS-CIMB added.
Based on Bloomberg data, QL, with a price-earnings ratio (PER) of
40.96 times, is currently trading at a discount to its five-year average
PER of 44.12 times.
Likewise, TA Securities believes QL will benefit from economic
recovery as poultry and fisheries, which it is involved in, are among
the most sought-after protein sources in Malaysia and the region. Its
aggressive store openings planned for Family Mart were also highlighted
as another earnings growth catalyst.
CGS-CIMB has a target price (TP) of RM5.50 for QL, while TA Securities has pegged its TP for QL at RM5.90.
On 2022's first trading day, the stock closed five sen higher at
RM4.68. It climbed another one sen to settle at RM4.69 on Tuesday, with a
market capitalisation of RM11.41 billion.
Hong Leong Bank Bhd
CGS-CIMB and TA Securities also like Hong Leong Bank Bhd (HLB), which
CGS-CIMB has highlighted as one of the most defensive banks against
credit risks from Covid-19.
CGS-CIMB also likes Public Bank Bhd and RHB Bank Bhd in the banking
space, which it has an "overweight" call on expectation of the
anticipated economic recovery and a potential rate hike, which will be
positive for banks. While it noted banks' CY22F core net profit will be
dragged by the one-off Cukai Makmur or Prosperity Tax, excluding this,
it expects banks' CY22F core net profit to increase by a rate of 9.4%.
But HLB is its "top pick among Malaysian banks, for its defensive
qualities against the credit risks from Covid-19 and good growth
prospects from the expected decline in loan loss provisioning, and
strong growth in associate contributions from Bank of Chengdu in
FY22-23F (which are potential rerating catalysts)".
TA Securities, on the other hand, has highlighted HLB's stellar asset
quality against other banks', with its gross impaired loans ratio
having improved to 0.48% in 1QFY22 despite a challenging macro
environment. Around 22% (versus industry's average of 31%) of HLB's loan
base is under the Payment Relief Assistance Plans, it noted, indicating
the bank's borrower's profile strength.
Besides its established regional presence, particularly in
fast-rising ASEAN countries such as Singapore, Vietnam, and Cambodia, TA
Securities also likes HLB for its high environmental, social and
governance rating, with a score of 71%, which it noted is one of the
highest among its banking peers, with above industry average
sustainability efforts.
CGS-CIMB has a RM20.56 TP for HLB, while TA Securities's TP is RM21.70.
HLB settled 20 sen higher at RM18.96 on Jan 4, valuing the bank at
RM41.1 billion. Since January last year, the stock has climbed 7%.
The stock is currently trading at a trailing 12-month PER of 13
times, below the sectoral Bursa Malaysia Finance Index's PER of 14.61
times.
Genting Bhd
Genting Bhd is Kenanga's top pick for recovery play as the research
house believes the group's business will recover quickly once
cross-border restrictions are relaxed and lifted.
Genting, whose earnings are globally diversified with significant
earnings derived from the US and the UK, would also benefit from a
stronger US dollar amid a recovery in patronage, said Kenanga.
It added that the new outdoor theme park — Genting SkyWorlds Theme
Park — is expected to drive subsidiary Genting Malaysia Bhd's non-gaming
revenue.
Over the past one year, Genting shares have climbed 8.98%.
Six analysts have placed a "buy" call on Genting, Bloomberg data
showed. Their TPs for the company range from RM5.20 to RM6.92, for an
average of RM6.05.
On the sectoral front, the research house believes the gaming sector
is poised to be a major beneficiary of recovery play in 2022, with
number forecast operators (NFOs) still offering an attractive dividend
yield.
"While ticket sales post Movement Control Order have been slow, the
worst is over for NFOs as ticket sales should recover to 80% to 85% of
pre-Covid level in the first half of 2022.
"The continuous enforcement clamping down on the illegal players is still the key to ticket sales growth," it added.
Shares in Genting finished five sen or 1.06% higher at RM4.78, giving the group a market value of RM18.53 billion.
Dialog Group Bhd
Dialog Group Bhd was one of the worst performing stocks among FBM
KLCI constituents in 2021. Its recent earnings saw some decline, dragged
mainly by slower downstream activities given the lockdown and slower
activity levels.
The stock is down by 22.3% since January last year, after declining
from a peak of RM3.43 during that month to as low as RM2.29 in
September.
Notably, the stock is currently trading below its five-year average PER of 31.73 times, based on Bloomberg data.
On the potential catalyst to the group's share price, Kenanga
believes Dialog's stable midstream operations provide a defensive base
to cash flows and earnings.
"At current share prices, market is failing to price in any future
expansion from Pengerang which we think is likely as Petronas' Pengerang
Integrated Complex is set to commence soon, which we believe will help
boost prospects for further investments into Pengerang," it said in a
research note.
On Jan 4, the stock ended unchanged at RM2.65, valuing the group at RM14.96 billion.
Inari Amertron Bhd
Year 2021 was a remarkable one for Inari Amertron Bhd as its share
price rallied by 47% and its net profit doubled in its financial year
2021 (FY21) ended June 30, 2021. Its share price more than doubled from
RM1.60 in early January 2020.
CGS-CIMB expects Inari's earnings growth momentum to continue this
year on the back of rising 5G penetration and its diversification into
auto and industrial sectors.
"We continue to like Inari Amertron Bhd as the largest market cap and
most liquid exposure proxy radio-frequency content value. Its recent
inclusion in the KLCI index is likely to help catalyst its share price.
"Inari's new system-on-module (SOM) assembly division at P55 is on
track to begin production in the first quarter of 2022. We view SOM
division as a new growth driver for Inari to diversify and grow its
exposure in the automotive and data centre segments.
"In addition, Inari is partnering with China Fortune-Tech Capital Co
Ltd to set up a joint venture (JV) for outsourced semiconductor assembly
and test manufacturing services in China," it said in a research note.
CGS-CIMB has placed a TP of RM4.95, valuing the company at a forecast
PER of 38 times. It believes Inari commands a scarcity premium due to
its size and unique position as a FBM KLCI component stock and FTSE4Good
Index.
MY EG Services Bhd
CGS-CIMB expects the possible rerating catalysts for MY EG Services
Bhd are potential new income stream from Zetrix blockchain JV, higher
take-up for its new health-tech services, and expansion of its
e-government digital service offerings.
It also said that the group is poised for stronger quarter-on-quarter
earnings growth in its fourth quarter of FY21 (4QFY21) ended Dec 31,
2021, driven by higher demand from the health-tech segment, such as
private quarantine services for travellers entering Malaysia and the
roll-out of Covid-19 breath test systems at major airports nationwide.
CGS-CIMB has placed a TP of RM1.30 and cited that delays in its new
e-government services and lower take-up rate for its health-tech
services are the downside risks to its "add" recommendation.
The TP of RM1.30 is based on 26 times of the forecast earnings for
FY23, which is above its five-year historical PER of 23 times.
Mr DIY Group (M) Bhd
This is a stock for recovery-theme play on Bursa Malaysia.
With a 15.82% gain for the past one year, Mr DIY is on CGS-CIMB's top
pick list as it believes the home improvement retailer is primed for a
strong recovery in footfall and average sales per store.
There are 10 analysts having a "buy" call while one has placed a
"hold" call, with TPs ranging from the lowest of RM3.39 to the highest
of RM4.85.
CGS-CIMB pegs its TP at RM4.40, valuing the retailer at 40 times of
the forecast earnings for FY23. The stock closed at RM3.61 on Jan 4.
"We expect its quarterly revenue growth trajectory to continue from
its 3QFY21 ended Sept 30, 2021, as most of its outlets are gradually
allowed to open, while both consumer footfall and consumer sentiment
improve," said CGS-CIMB.
In 3QFY21, the group posted a lower net profit of RM90.35 million or
1.44 sen per share versus RM113.45 million or 1.86 sen per share a year
ago due to higher operating expenses from higher store count, while
outlets remained closed when Covid-19 movement restriction measures were
enforced.
Leong Hup International Bhd
Expectations of better sales at bakery business and higher poultry
average selling price (ASP), according to TA Securities, will drive
Leong Hup International Bhd's earnings in 2022.
TA Securities noted that Leong Hup is expected to increase the number
of The Bakers Cottage stores, which contribute to about 10% of its
revenue from home operations.
However, TA Securities cautioned that the key risk factors are
volatility in ASP of poultry products, and inability to pass through
higher feed and input costs if domestic lockdown is implemented.
Leong Hup's share price rebounded from the low of 49.5 sen on Dec 20,
2021 — the lowest level since the equity rout in the first quarter of
2020. The stock was on a decline starting in June last year, falling
from 77 sen.
The poultry firm is another consensus "buy", all the seven analysts
tracking the stock are advising clients to invest in Leong Hup. TA
Securities pegs its TP at 91 sen, which is substantially higher compared
with an average TP of 78 sen. It closed at 54 sen on Jan 4.
Sime Darby Bhd
Apart from unlocking asset value through divestments, the diversified
group is riding on the growing affluence of the middle class in China.
"Sime Darby is reaping the benefits from China's strong rebound in
car sales. The car sales in China surged by 29% in FY21 mainly from its
BMW China operations.
"We expect the group's motor division to continue delivering
compelling results, thanks to rising affluence of the middle class [in
China] that spurs the growth in demand for luxury items," said TA
Securities.
TA highlighted that Sime Darby is in the midst of divesting non-core
assets to focus on its core trading businesses of industrial and motors,
and the healthcare business.
"We understand that management is still keen to exit the port
business and is working towards divesting its seaport in Weifang, China.
This asset had a carrying value of RM963 million as stated in Annual
Report 2020."
Besides, it intends to monetise 8,800 acres of plantation land in
Labu, Negeri Sembilan, which has been earmarked for the Malaysia Vision
Valley project. But the timing of it is not clear.
TA Securities' TP of RM3.02 is based on sum of parts valuation. The highest TP is at RM5.80 among analysts tracking the group.
Telekom Malaysia Bhd
Riding on the 5G roll-out, TA Securities expects Telekom Malaysia Bhd
(TM) would get the chance to lease its nationwide fibre network.
TA Securities believes that TM is also poised to benefit from the
government's efforts to expand the digital economy. Cloud service is an
example. The telco is among the four cloud service providers along with
Microsoft, Google, and Amazon that are given conditional approvals to
build and manage hyper-scale data centres and cloud services in
Malaysia.
"Under the Malaysia Digital Economy Blueprint (MyDIGITAL), the
government has outlined plans to shift towards a Cloud-First Strategy
which targets to migrate 80% of public data to a hybrid cloud system by
end-2022," it said.
On top of that, TA Securities noted that TM's fixed broadband segment
is a clear beneficiary of the demand for fixed connectivity driven by
the "acceleration in digitalisation" as a result of the pandemic.
TM saw six straight quarters of fixed broadband net adds from 2QFY20
to 3QFY21. "There remains further room for growth in the fixed broadband
space, with its nationwide penetration at 39.9% in [3QFY21]," it said.
TM is also another consensus "buy", with 20 analysts recommending it
alongside an average TP of RM6.91, compared with its closing price of
RM5.47 on Jan 4. The counter soared to a record high of RM6.54 in
February 2021.
TA Securities pegs its TP at RM7, based on a discounted cash flow
valuation with a weighted average cost of capital of 8.5% and long-term
growth rate of 1.0%.
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Kathy Fong, Tan Choe Choe and S Kanagaraju (The Edge Markets)
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