The Edge Financial Daily’s Top 10 Stock Picks for 2017 has managed to generate a return of about 15%, outperforming the year-to-date (YTD) return of FBM KLCI and FBM EMAS of 6.8% and 9.8% respectively. To put into perspective, investors who allocate about a total of RM10,000 to the list or an equal RM1,000 investment in each of the 10 stocks will see a return of about RM1,500 YTD.

There were, however, some disappointments as oil and gas companies were not rebounding in line with the recovery in crude oil price at above US$60 (RM244.80) per barrel. Some companies like Gamuda Bhd and Magni-Tech Industries Bhd saw a strong first half, similar to most of the companies on the Bursa Malaysia stock exchange, but, eventually, lost momentum as we entered into the third quarter of the year with negative news flow and disappointing earnings results.

Some companies managed to turn around the corner in terms of their financial results but share-price performance continued to disappoint. Export-driven companies like Inari Amertron Bhd continued to outperform with better results and share-price performance.

On average, the selection managed to outperform the domestic market but returns were short of impressive when compared with returns of our regional peers, which mostly saw a strong double-digit growth YTD.

Inari Amertron Bhd

Top performer of the stock picks, Inari maintained its strong performance from 2016 into 2017 as the group continued to see improvements in its earnings. For the group’s financial results for its first quarter of financial year 2018 (1QFY18) ended Sept 30, 2017, its net profit increased by 42.4% to RM68.4 million while its revenue grew by 32.5% to RM373.1 million.

It is worth noting that Inari has consistently recorded year-on-year growth of its bottom line since 4QFY16 while it has maintained a double-digit growth for its revenue since 2QFY17.

The company, which was selected at the beginning of the year in anticipation of the positive impact from iPhone’s 10th anniversary, has seen a strong and growing demand for premium radio frequency (RF) filters in 2017. According to Kevin Low from Affin Hwang Investment Bank Bhd, Inari’s RF testers have grown to 960 units currently and are projected to reach 1,000 units by year end.

Investors who bought into the company at the end of last year would have seen a return of 110.3% from their investment, which is in line with the strong performance among semiconductor and tech-related companies globally. The strong performance is consistent with its annualised return of 100.4% in the last five years.

At its closing price of RM3.36 last Friday, the company is trading at a trailing price-earnings ratio (PER) of 26.7 times with an indicated dividend yield of 2.6%. — By Billy Toh

Magni-Tech Industries Bhd

The top performer in the first half of 2017 saw its share price fall after the largest original manufacturer for Nike in Malaysia recorded a declining result for both its 1QFY18 ended July 30, 2017 and 2QFY18. Despite the drop, it still manage to record a gain of 41.4% YTD.

The garment maker’s 1QFY18 net profit was lower by 16.8% from a year ago at RM19.6 million mainly due to net foreign exchange (forex) loss of RM1.3 million compared to a net forex gain of RM3.4 million in 1QFY17 as well as higher operating expenses such as the impact of higher minimum wages both locally and in Vietnam. The consecutive quarter of lower profit in 2QFY18, where Magni-Tech recorded a lower revenue and net profit, hurt its share price further as it fell by 6.3% to RM5.63 following the announcement of its 2QFY18 results.

Inter-Pacific Research’s head of research, Pong Teng Siew, has maintained a “buy” call on Magni-Tech with a lower target price (TP) of RM6.78. In his report dated Dec 15, Magni-Tech could see its earnings dip in FY18 as wage pressures in Vietnam rise and orders from Nike are affected by sluggish US retail sales growth, a style range rationalisation by 25% starting January next year, Adidas’ market share gains and forex impact from the strengthening of the ringgit.

At current levels, Magni-Tech is trading at a trailing PER of about 8.7 times with a dividend yield of about 3.3% and is just short of RM1 billion market capitalisation at RM937.3 million. — By Billy Toh

Gamuda Bhd

Gamuda Bhd was selected as one of the top picks for 2017 with expectations of being one of the main beneficiaries from the rollout of new major infrastructure projects in Malaysia, but it saw a relatively quiet year as it only managed a return of about 1.8% YTD.

The company had a strong first half this year, which saw a total return of about 14.3% when it closed at an eight-year high of RM5.44 per share.

The wave of optimism, however, fizzled out after Mass Rapid Transit Corp Sdn Bhd’s mass rapid transit line 3 (MRT3) tender process required bidders to provide financing for the public rail project. The requirement could rule out any Malaysian contractor being the lead contractor, due to relative balance sheet risks.

With the need to provide financing — the turnkey contractor has to come up with a financing proposal for at least 90% of the project value, which could potentially cost more than RM30 billion and a moratorium for the first eight years — Gamuda might see its role in MRT3 potentially reduced.

As the construction company has historically been the biggest beneficiary due to its project delivery partner role and healthy margins for tunneling, investors reacted negatively to the news flow and caused its share price to fall by 12.9% to RM4.58 on Nov 21 from its closing of RM5.26 on Oct 30.

Gamuda is now trading at a trailing PER of 18 times, giving it a market capitalisation of RM11.7 billion. — By Billy Toh

Classic Scenic Bhd

Classic Scenic Bhd is the dividend play for our stock pick as it offers a decent dividend yield of about 5.9%. The wooden picture frame manufacturer has a strong operating cash flow to support its dividend payout. While the company’s share-price performance for 2017 has remained subdued with a total return of about 0.24% YTD, long-term investors would still have seen an annualised return of about 18.2% in the past 10 years.

The group’s underperformance was mainly due to weaker financial results in its 2QFY17 ended June 30, 2017 and 3QFY17. For its 2QFY17, Classic Scenic’s net profit fell by 6.8% to RM3.4 million from RM3.6 million in the corresponding quarter a year ago mainly due to lower sales revenue. The higher labour costs and operating expenses as a result of lower forex gain on derivatives also hurt its profitability. Similarly, for its 3QFY17, the group’s net profit fell by 8.2% to RM3 million compared with RM3.2 million in 3QFY16.

Its management, however, has been positive about consumer spending in the near term on the back of ongoing strength seen in the labour market. In its note filed with Bursa Malaysia, it also shared that the group is making every effort to weather the external challenges by focusing more on development of new marketable products and coming out with other operational improvements.

With its strong net cash position of RM22.1 million as at Sept 30 this year, the group remains at a comfortable level to maintain its dividend payout. — By Billy Toh

Protasco Bhd

Continuous declining financial results in the current financial year have taken away the optimism of investors on the outlook for Protasco Bhd. Touted as one of the companies to benefit from a possible early 14th general election (GE14) for potentially extra emergency road maintenance work, The Edge Financial Daily listed Protasco as one of the stock picks for the year.

However, the company has underperformed in both its financial results and its share price, with a loss of about 3% YTD. The group’s net profit for its 2QFY17 ended June 30, 2017 fell by 45% to RM7.9 million. Similarly, for its 3QFY17, Protasco saw its net profit drop by 28% to RM10.3 million.

With the weaker financial results and a lack of news flow on contracts win, Hong Leong Investment Bank Research has downgraded its rating from “buy” to “hold” in its latest report on Nov 30, with a lower TP of RM1.14 from RM1.20. It pointed out that there is a pickup for its road maintenance business as seen in its 3QFY17 and is hopeful that public spending on road maintenance could pick up in the near term as we draw closer to the impending GE14.

Despite the weaker performance in 2017, Bloomberg data show that consensus’ TP is at RM1.30, indicating a potential return of 25%. At current levels, Protasco is trading at a trailing PER of 18.3 times, giving it a market capitalisation of RM441.2 million. It also has a decent dividend yield of 5.8%, which is one of the highest among the construction players. — By Billy Toh

Ta Ann Holdings Bhd

Sarawak-based Ta Ann Holdings Bhd was selected as one of the stock picks for the year in anticipation of improved demand for timber as well as the turnaround for the plantation sector at the beginning of the year. It, however, saw another disappointing year in 2017 as its share price fell by 7.3% YTD despite the stronger financial results for its first nine months of FY17 (9MFY17) ended Sept 30, 2017.

The company’s 9MFY17 net profit edged higher by 2.3% to RM95.8 million from RM93.6 million in 9MFY16, contributed by the better crude palm oil (CPO) and fresh fruit bunch (FFB) average selling prices by 14% and 11% respectively as well as the higher sales volume of 11% and 13% for CPO and FFB respectively.

Affin Hwang Investment Bhd analyst, Nadia Aquidah, maintains her “buy” call on Ta Ann with a TP of RM4.25 as she believes that plantation division earnings growth would be able to partially offset the drop in timber division earnings for 2018.

“We believe it will be a challenging environment going forward for the timber division given an increase in hill timber premium as well as reduction in the export quota,” she said in her report on Nov 28.

Bloomberg data show that there are three “buy” calls and six “hold” calls, with an average 12-month TP of RM3.90, indicating a potential return of 9.6% from its current price of RM3.56.

At current level, Ta Ann is trading at a trailing PER of 12.8 times, giving it a market capitalisation of RM1.6 billion.  — By Billy Toh

Sapura Energy Bhd

Sapura Energy Bhd was the worst performer among our stock picks for the year with a decline of 51.3% YTD after its share price took a beating recently following the announcement of its results for 3QFY18 ended Oct 31, 2017 that saw a net loss of RM274.4 million.

The poorer-than-expected financial performance took place despite the oil price hovering at US$63.26 per barrel as of writing. Recall that Sapura Energy was selected as one of the stock picks for the year as it could be one of the biggest beneficiaries of the oil production cut between Opec and non-Opec members.

In line with the O&G sector’s recovery theme on improved sentiment following gradual recovery in oil prices, most analysts are optimistic about a turnaround story for Sapura Energy. Bloomberg data show that the average 12-month TP for the group is at about RM1.28, indicating a potential return of 62% from its current price of 78.5 sen.

Following the announcement of its financial results as well as the decline in its share price, analysts have made changes to the recommendation with MIDF Research downgrading Sapura Energy to “hold” while Kenanga reduced the stock to “underperform”.

CIMB Research and Maybank Investment Bank Research remain positive about Sapura Energy, as CIMB upgraded the stock to “buy” with a lower TP of RM1.42 from RM1.63 while Maybank IB Research kept its “buy” call on the stock with a lower TP of RM1.20 from its previous RM2. — By Samantha Ho

Genting Malaysia Bhd

Expectation of an influx of visitors from China to the hilltop casino resort put Genting Malaysia back on many institutional investors’ buying list. In addition, the progressive launch of the Genting Integrated Tourism Plan also raised expectation of better earnings. Given the fresh growth catalysts, Genting Malaysia was listed as one of The Edge Financial Daily’s stock picks for the year. 

The return of foreign interest on Bursa Malaysia in the first half of the year helped fuel the share-price rally.

The stock started the year on a firm note and it climbed to record-high RM6.14 from RM4.60 — a strong rally that had not happened in five years, at least. Genting Malaysia, which was once foreign investors’ darling, garnered less attention since some Macau-based casino operators and its sister company Genting Singapore plc were listed in Hong Kong and Singapore respectively. 

However, the rally lost steam as Genting Malaysia’s earnings performance did not meet expectations in its 2QFY17 ended June 30, 2017 and 3QFY17. Furthermore, foreign selling in the second half of the year dragged the counter to a low of RM4.90, down 20% from the peak.

For its 3QFY17, stripping out various exceptional items, Genting Malaysia’s core profit was down by 45% to RM259 million. Analysts noticed that the group’s costs had gone up, such as staff and finance costs, which hurt its profitability. — By Kathy Fong

Sime Darby Bhd

The change of guard at Sime Darby Bhd’s controlling shareholder Permodalan Nasional Bhd (PNB) threw the diversified conglomerate into the limelight.

Expectation of PNB’s chairman Tan Sri Abdul Wahid Omar restructuring Sime Darby to unlock asset value prompted many to take a second look at the big-cap counter.

In January, Sime Darby announced its restructuring exercise. The conglomerate adopted a “pure play strategy”, breaking the group into three listed entities, namely Sime Darby Bhd, which houses the auto, industrial, logistics and other businesses; Sime Darby Plantation Bhd and Sime Darby Property Bhd. Shares in the plantation and property arms were distributed to shareholders.

Meanwhile, both Sime Darby Plantation and Sime Darby Property were listed by introduction on Bursa Malaysia without issuing new shares to raise fresh capital. The listing reference price for Sime Darby Plantation was pegged at RM5.59 while Sime Darby Property’s was RM1.50.

Given the renewed interest, Sime Darby’s share price staged a rally, climbing from the RM8-level to a four-year high of RM9.62.

If an investor had 1,000 Sime Darby shares at the start of the year, he would have gained about 8.52% as of Dec 15 by holding 1,000 shares in each of Sime Darby listed members now. Sime Darby closed at RM2.12, Sime Darby Plantation RM5.25 and Sime Darby Property RM1.42 last Friday. — By Kathy Fong

Bumi Armada Bhd

Bumi Armada Bhd, which is controlled by tycoon Tan Sri Ananda Krishnan, is one of the two O&G stocks among The Edge Financial Daily’s stock picks for the year.

The world’s largest floating production storage and offloading (FPSO) operator fell victim to the fierce selldown in the O&G sector for two years, falling from the height of RM2.60 in 2014 to nearly 50 sen late last year. It was hammered down to oversold zone then.

Bumi Armada’s share price rebounded this year, although not strongly. It climbed above 80 sen in April; it later hovered in the tight range of between 70 sen and 80 sen in the second half of the year.

The improved earnings have lent support to Bumi Armada’s share price. The group returned to the black in its 9MFY17 ended Sept 30, 2017 after it had been loss-making for two years. The group posted a net profit of RM288.4 million, a sharp contrast to a net loss of RM591.6 million in the previous corresponding period. Revenue ballooned almost 44% to RM1.74 billion against RM1.211 billion a year ago.

The group’s better performance was mainly boosted by the four major floating production and operation projects, which have been coming online in stages.

Bumi Armada’s firm order book as of Sept 30 was approximately RM22.7 billion, with additional optional extensions of up to RM13.1 billion, according to the company’s latest statement on quarterly earnings. — By Kathy Fong