MY Stocks To Buy Post Election (Part 3)
Following part 1 and part 2 coverage of our 4-part series on CIMB’s Malaysia strategy, we follow up with part 3 of the series focusing on stocks that are set for a bumper year in 2018 even with the market uncertainty.
Investors Takeaway: 4 Malaysian Stocks That Are Set For A Bumper Year
Petronas Dagangan
With the expected commissioning of Petronas’ RAPID refinery in 1Q19F, CIMB believes that Petronas Dagangan volume growth and market share is set to increase, especially in the commercial space. The RAPID refinery will produce Euro 5-compliant motor gasoline, diesel and other products like jet fuel. These products will allow Petronas Dagangan to penetrate more deeply into the commercial market. CIMB also notes that there are some opportunities to raise market share in the retail market by opening more pump stations and engage in more promotional activities.
According to CIMB, the potential earnings upside from the commissioning of Petronas’ RAPID refinery has not been factored into the current share price. Based on CIMB’s valuation of the potential earnings from Petronas’ RAPID refinery, CIMB has given a target price recommendation of RM29.23.
BUY, TP RM29.23
Destini
Destini recently clinched a RM138 million contract to provide maintenance, repair and overhaul (MRO) services to the Royal Malaysian Air Force (RMAF). The contract also includes supplying safety and survival equipment. This new contract is on top of the existing contract that will run till October 2019.
Apart from the MRO services contract, Destini had also won a two-year umbrella contract by Petronas Carigali for the provision of well abandonment integrated services. CIMB notes that well abandonment services have great long-term potential given that 65 percent of Malaysia’s 300 platforms are older than the typical platform. Should Destini secure new MRO jobs from KTM and more military vessel construction jobs, CIMB believes that Destini’s share price could be re-catalysed.
BUY, TP RM0.80
IHH Healthcare
While IHH Healthcare met with a blocker to participate in Fortis Healthcare due to Fortis’ binding agreements with Manipal-TPG, this might be a blessing in disguise for IHH Healthcare investors. CIMB believes that IHH Healthcare could take its offer directly to Fortis’s shareholders to take over the second largest private hospital chain in India.
Fortis’ appeal to IHH Healthcare is down for three main reasons: Its extensive presence in India, especially in northern India; Sizeable hospitals with expertise in niche/complex care, and; Alignment with IHH Healthcare’s brownfield strategy. Given that India is its fourth largest healthcare market, IHH Healthcare will be keen to expand its footprint with the acquisition of Fortis.
BUY, TP RM6.86
IGB REIT
IGB REIT continues to perform in line with earnings expectations as growth continued to be driven by positive rental reversions, sustained occupancy rates and tenant sales growth. Given that rent for its assets are still lower than the prime areas in KL city centre, there could be further positive rental reversions for IGB REIT given the strong demand for Mid Valley Megamall and The Gardens Mall.
Since its share price corrected from its peak at the start of the year, IGB REIT has now become attractively priced in terms of distribution yield (6.4 percent vs peers’ 5.7 percent). Moreover, IGB REIT is also trading below peers’ book value (1.4 times price-to-book value vs sector average of 2.0 times). CIMB believes that its prime asset positioning and strong shopper traffic will continue to help shield it from the challenging retail market. Thus, it is now a good opportunity to accumulate the share on its price weakness.
BUY, TP RM1.73
