The online livestream comes to life as Tan Seri Anwar Ibrahim enters the podium. With a flip of his fingers, he looks up and smiles. Budget 2024 was in session, and every Malaysian was glued to the broadcast. What goodies can they expect from this year’s budget?
As usual, there is a lot to unpack from Malaysia’s Budget 2024 measures. Everyone’s attention was turned to the increase in the Sales and Services Tax from 6% to 8%.
However, there are some announcements that could be worth taking a good look at. It could mean an opportunity for you to enter into these companies.
Let’s take a look at the 5 top Malaysian stocks that could benefit…
Perhaps one of the best news that is coming out for the infrastructure sector in Malaysia, the Malaysian government announced that it will proceed with the construction of the five previously cancelled Light Rail Transit 3 (LRT3) stations costing RM$4.7 billion.
Malaysian Resources Corporation Berhad (MRCB) is currently the project delivery partner (PDP) working on the LRT3 project. Hence, this could improve the order book for the company.
MRCB is involved in the property development, engineering, and construction industries and has previously formed a joint venture with George Kent to undertake the LRT3 project. It has recently bought out George Kent’s stake in the project and is now the sole PDP.
In terms of its financial performance, here are some key takeaways from the company
- Revenue has declined to RM$1.3 billion in 1H 2023 from RM$1.7 billion in 2H 2022 as the current LRT3 project (without the 5 LRT3 stations) are currently at 86% completion. Meanwhile, it has also recently completed two property development projects.
- As a result, profits are also down to RM$19.5 million from RM$28.6 million over the same period, giving it a slightly lower profit margin of 1.5% for 1H 2023.
- MRCB currently has a total construction orderbook of RM$26 billion. An addition of RM$4.7 billion could potentially contribute 18% additional revenue in the coming years.
MRCB is currently trading at a price-to-earnings (PER) ratio of 38.3 times, much higher than the industry’s average of 16.8 times, and yields a dividend of 2.1%.
Market analysts have MRCB at an OVERWEIGHT call at an average target price of RM$0.51. This implies an upside of 5.6%.
#2 Petronas Chemicals Group
Good news for Petronas, more specifically for its Pengerang project in Johor. The government has proposed that the Pengerang Integrated Petroleum Complex (PIPC) area be turned into a development hub for for the chemical and petrochemical sectors.
It plans to do so by introducing a tax incentive package in the form of a special tax rate or investment tax allowance. Hence, Petronas Chemicals Group (PCG) could stand to benefit from this being an integrated petrochemicals producer, while Petronas (the parent company) was the organisation behind the PIPC project.
Amid a decline in crude oil prices this year, PCG’s revenue has also declined by 6.8% to RM$14.7 billion in 1H 2023 from RM$15.8 billion in 2H 2022. Profits also followed suit with a decline of 51.2% to RM$1.2 billion from RM$2.4 billion over the same period.
In terms of valuation, PCG is trading at a PER of 16.7 times compared to the industry’s average of 30.6 times. Meanwhile, market analysts have PCG at an UNDERWEIGHT investment call but this could soon change with the latest Budget 2024 measure announcements.
It currently gives a dividend yield of 5.6%.
There was a brief mention of the Penang to Seberang Perai LRT project in the Budget 2024. The Budget puts the cost of the project at RM10 billion which is a welcomed development to the project.
The reason why Gamuda might be a top pick here is due to its role as the PDP for the Penang Transport Master Plan (PTMP). Gamuda is an engineering, property and infrastructure company, who has an extensive experience in the light rail transit sectors with its involvement in the MRT1 and MRT2 projects.
Gamuda’s financial performance has been spectacular recently. Revenue doubled to RM$5.5 billion in 1H 2023 from RM$2.7 billion in 2H 2022 as the MRT2 project was successfully completed and opened to the public. Likewise, profits also grew by 35.3% to RM$481 million from RM$356 million over the same period.
Gamuda is trading at a price-to=earnings ratio of 17 times compared to the industry’s average of 58.7 times, and yields a dividend of 1.3%.
Market analysts have Gamuda at a BUY investment call with an average target price of RM$5.15. This implies an upside of 11.9%.
#4 Sunway Group
The government has decided to cut entertainment duty tax for theme parks, family recreation centres, indoor game centres and simulators from 25% to only 5% in Klang Valley.
This could potentially be a boon to Sunway Group (Sunway) as it owns a big theme park called Sunway Lagoon that has been the mainstay of Klang Valley for many years.
Sunway is a conglomerate involved in the real estate, construction, education and healthcare industries. Its flagship theme park, Sunway Lagoon is located next to its flagship mall of Sunway Pyramid.
Sunway’s revenue rose by 14.2% to RM$2.7 billion in 1H 2023 from RM$2.4 billion in 1H 2022 due to a rise in property development and investments segments revenue amid the full reopening of the Malaysian economy. Meanwhile, profits also rose by 1.9% to RM$395 million from RM$388 million over the same period as it was constrained by lower margins from its construction business.
From the valuations perspective, Sunway is trading at a PER of 14.3 times compared to the industry’s average of 13.6 times, and yields a dividend of 3.4%.
Markets have Sunway at a BUY investment call with an average target price of RM2.33. This implies an upside of 23.1%.
In the Budget 2024, the Malaysian government announced a rebate of RM2,400 for the purchase of electric motorcycles for households earning RM120,000 and below.
This could bode well for DRB-Hicom which has the motorcycle arm, Modenas that produces and distributes electric motorcycles. Recently, it has delivered about 50 such motorcycles to Pos Malaysia.
DRB-Hicom is also a conglomerate with presence in the aerospace & defense, automotive, banking, postal, and property segments. Modenas has previously partnered with Kawasaki Motors (premier motorbike brand) and Modenas has since acquired the exclusive rights to distribute Kawasaki’s brands in Malaysia.
For 1H 2023, while revenue did decline by 9% to RM$8.1 billion from RM$8.9 billion in 2H 2022, profits actually rose by 63.8% to RM$233 million from RM$142 million over the same period.
In terms of valuation, DRB-Hicom is currently trading at PER of 15 times compared to the industry’s average of 10.4 times. Dividend yield stood at 1.4% with market analysts putting a BUY investment call on it. With an average target price of RM$1.93, this implies an upside of 33.3%.
The Budget 2024 presents a plethora of opportunities for investors to sink their teeth in the Malaysian markets. From investment tax incentives to rebates on motorcycles, each measure could potentially benefit the companies above.
Take your time now to research these companies using this article as a guide to make the best investment decision for yourself.