By Say Cheong //
September 14, 2022
top stocks

The theme in the past few weeks was raising interest rates to curb inflation. Even the usual dovish EU has raised its rates by an unprecedented 75 basis points to curb inflation.

In Asia, we fare relatively better in terms of managing the inflation given that our oil supplies are in-tact. Coupled with the opening of borders, Malaysia has become an interesting ground for investors to look for gems to invest in.

Here are 7 top Malaysia Stocks in September that you should take note of.

Stock Idea #1 Kellington Group

RHB has maintained its Buy rating on the stock with a target price of MYR 1.71.

The healthy orderbook drives the analyst’s positive valuation of the company.

“Healthy tenderbook tempers slowdown concerns. While recent media reports have painted a more cautious outlook on the semiconductor industry, KGB views this as an “inventory adjustment” phase with robust tender activities still.

The strong demand for high-tech chips used in data centres, EV, and 5G is mitigating the slowdown witnessed in consumer related products (ie smartphones and PCs).

The positive outlook is driven by continuing fab capacity expansion, aided by policy initiatives to shore up domestic production. Of the latest tenderbook of MYR1.5bn, China makes up 47%, followed by Singapore (28%) and Malaysia (25%).”

>> Read more about the company here.

Stock Idea #2 Deleum

AM Investment Bank has maintained its BUY rating on the company with a target price of MYR 1.02.

The company’s growth and stable outlook are the impetus for the analyst’s valuation.

“In the power and machinery (P&M) segment, while Deleum recorded a 1HFY22 decline of 15% YoY in sales of gas turbine packages and after-sales support and services (which accounted for 48% of group revenue) to RM110mil, management remains optimistic on the long-term outlook given the necessity for periodic maintenance to ensure efficient performance of gas turbines.

Management further highlighted that despite the considerable potential orders for maintenance services from clients, it could not book in job awards due to delays in finalising contractual terms.

The number of gas turbines operating in Malaysia is estimated to be 250–300 units, which implies robust demand for recurring maintenance services for these turbines.”

>> Read more about the company here.

Stock Idea #3 Coastal Contracts

RHB has maintained its Buy rating on the company with a target price of MYR 2.40.

The optimism and good outlook displayed by the management is a sign of good growth for the company.

“Management is optimistic on possible extensions for contracts due to expire in 2024. The firm period for the jackup gas compression service unit (JUGCSU) is until Feb 2024.

The group is looking to seal a first extension of up to three years and possible subsequent extensions of up to 5-7 years on the basis of the JUGCSU being a key asset for Pemex’s oil enhancement recovery process.

The contract for the Perdiz plant is also expected to extend at a minimum of three years following the Ixachi field’s forecasted gas production peak level (c.1,100mmscfd), which is projected to be in 2026-2028.

Meanwhile, the Teras Conquest 7 vessel recently obtained an extension for a firm period of two years with two years annual extension options. ”

>> Read more about the company here.

Stock Idea #4 Evergreen Fibreboard

Hong Leong has maintained its Buy rating on the company with a target price of MYR 0.82.

The geo-political situation between China and USA will surprisingly provide an upside to the company.

“Elevated US-China tensions continue to play to Evergreen’s favour as more US furniture buyers continue to move away from China and purchase instead from furniture makers in SEA, including Malaysia.

This has resulted in many Chinese furniture makers moving out of China to setup their factories in SEA, which is a positive for Evergreen as these are potential new customers for the group to supply panel boards to given their proximity to Malaysia.

Likewise, the group’s RTA segment should continue to benefit from the trade diversion as well. On top of this, the Middle East economy remains strong driven by elevated oil revenue, resulting in continued high demand for furniture.

Moreover, talks of easing sanctions in Iran would be a major positive catalyst to boost panel board demand should it materialize.

On the cost side, we understand that the cost of glue has come off from its peak level which should augur well for the group’s overall margin.

Finally, the strong USD should continue to benefit the group with 3QTD RM4.46/USD (vs. RM4.27/USD in 1H22)”

>> Read more about the company here.

Stock Idea #5 Telekom Malaysia

RHB has maintained its Buy rating on the stock and with its target price at MYR 7.40.

The upside to guidance reflects the success in turnaround plan of the company.

“Things may be finally looking up for TM One (enterprise and public sector arm). TM is confident the turnaround in TM One revenue (+7.7% QoQ/+4.1% YoY) can be sustained on the back of recurring connectivity revenue and enterprise digitalisation efforts with a good funnel of projects.

It expects the newly set-up digital and cloud services outfit (Credence) to contribute in the medium term, having added 10 customers (across various industries) in a short span of time with a headcount support of 146.

TM said the 39% jump in account receivables (c. MYR800m) over the past six months is mostly related to government projects undertaken at TM One for which it expects payment to be made in 2H22. ”

>> Read more about the company here.

Stock Idea #6 CTOS Digital

Hong Leong has maintained its Buy rating on the company with a target price of MYR 1.70.

The positive acquisition is bound to help the company on its profits.

“CTOS proposed to buy the 15.7% and 0.8% RAM stakes belonging to Dragonline Solutions and Deutsche Bank for cash consideration of RM44.6m and RM2.3m respectively.

Overall, no surprises and we are positive on the deal since it is attractively priced and accretive in nature. Moreover, RAM fits nicely into CTOS’ broader business plan (see report dated 22 Jun-22, titled ‘Eyeing a bigger stake in RAM’).

Our forecasts were kept unchanged, pending deal completion. We still like CTOS for its market leadership, strong economic moat, and highly scalable business model. Thus, we view the YTD price pullback as a good opportunity to accumulate the stock. ”

>> Read more about the company here.

Stock Idea #7 Malaysian Flour

AM investment has maintained its Buy rating on the company with a target price of MYR 1.00.

The outstanding profitability level of the company drives the positive sentiments of the analyst.

“We estimate that MFM’s poultry unit recorded a turnover of RM716.7mil in FY20 and RM860.1mil in FY21. Hence a 10% penalty would translate into RM157.7mil.

Hence in spite of the risk of a financial penalty, we are keeping our recommendation on MFM. Excluding the financial penalty, if any, we believe that the poultry unit would swing into the black in FY22E. This is expected to
be underpinned by higher demand. We believe that MFM’s poultry processing plant in Lumut is currently operating at a utilisation rate of 60% currently.”

>> Read more about the company here.

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