Hengyuan Refining Co Bhd/Petron Malaysia Refining & Marketing Bhd

 
Is it half full or half empty? Hengyuan’s stock price had halved since the start of the year from the peak of RM18-level to a low of RM6.87 last week. Likewise, Petron has plunged 50% from above RM14 to a low of RM7.71 last week. However, share price has doubled in the past 12 months, while Petron has gained about 32%.

Still, judging by price-earnings ratio (PER), the two could be getting appealing for established companies. They are trading at low single PERs based on last financial year’s earnings per share (EPS).

Hengyuan’s shares are trading at PER of barely 2.75 times based on EPS of RM3.03. The anticipated delay in Hengyuan’s completion of the Euro4M Mogas project which could result in loss of revenue in current financial year has attributed to the selldown.

That said, should Hengyuan’s EPS shrink by half to RM1.50 because of the delay, its share price is still at PER of not even six times.

Globetronics Technology Bhd & Inari Amertron Bhd

Following the tariffs announced by US President Donald Trump on the 1,300 Chinese products, most semiconductor players saw their stocks sold down. Year to date, Globetronics’ share price fell by 40.4% while Inari declined by 22%.

As the confrontation between the two largest economies in the world escalates with more noises emerging last Friday, sentiment continues to remain negative for these semiconductor players. Nonetheless, at current level, the valuation of these companies has fallen off from their high.

Globetronics was trading at a trailing PER of 21.6 times. Inari on the other hand was trading at a trailing PER of 20.7 times.

With analysts expecting the trade spat to subside eventually, most continue to have a “buy” call for both the companies. For Globetronics, five out of seven analysts have a “buy” call on the company with their 12-month target price averaging at RM5.97, indicating a return potential of about 53.5%.

As for Inari, nine out of 15 analysts have a “buy” recommendation with a 12-month target price of RM3.47, indicating a return potential of 31.9%.

Kawan Food Bhd

Kawan Food’s share price had fallen by 39.2% to RM2.05 last Friday from a year ago. At the current level, the manufacturer of frozen pastry products is at its lowest level since December 2015 and is trading at a trailing PER of about 25.3 times, lower than its two-year average of about 29.4 times.

Recall that Kawan Food’s counter reached its all-time high of RM3.17 in 2017 following the announcement of a one-for-three bonus issue.

The positive sentiment was short-lived as net profit for the financial year ended Dec 31, 2017 fell by 11.8% to RM29.1 million compared with FY16, mainly led by higher foreign exchange losses and higher operation costs in FY17.

About 29.9% of the group’s revenue in FY17 was derived from North America but pastry products were not among the list of affected goods in the escalating trade brawl between the US and China. Hence, the trade war is likely to be a non-event for Kawan Food.

Sapura Energy Bhd

The stock started 2018 with a 42.6% rally in the first week to 97 sen by Jan 8, but since then had dropped by 49.49% to close at 50 sen last Friday.

From a field of 20 research houses, 13 have “buy” calls with target price as high as RM1.80 — implying as much as 267% upside if the optimism is believed.

The integrated oil and gas group fell into RM2.5 billion net loss in the financial year ended Jan 31, 2018 as revenue fell 22.95% to RM5.89 billion.

However, much of that was due to RM2.1 billion in impairments on its drilling rigs, which among others was aimed at lowering its operational cost base.

Going forward, Sapura plans to list its exploration and production unit which analysts expect will unlock sizeable value.

While Sapura saw its share price battered as global crude oil prices took a beating since mid-2014, it has shown resilience with continuous contract wins — and is the likely proxy to ride the continued recovery of the oil and gas sector.

Uchi Technologies Bhd

Uchi’s share price has slid almost 26% in the past three months, making it on the list of the top 30 losers among stocks with market capitalisation between RM500 million and RM10 billion.

The stock ended last week at RM2.39. The company recently proposed capital repayment of 20 sen per share. With the capital repayment, this means that investors are paying RM2.19 for Uchi’s business. Based on EPS of 16 sen, the stock is trading at PER of 13.6 times. CIMB Research pegs its target price at RM3.

CIMB Research estimates Uchi’s average return on equity to increase from 32% to 56% between financial year ended Dec 31, 2018 (FY18) and FY20 after the capital repayment.

Uchi targets to maintain high single-digit US dollar revenue growth for FY18, driven by stronger demand from its key client in the Art-of-Living segment — this client is looking to expand into new regions such as North America. Nevertheless, the strong ringgit will not augur well for Uchi’s earnings.

Dagang NeXchange Bhd

Dagang NeXchange (DNEX) had a rough week, falling 12.5% to close at 35.5 sen last Friday. That extends its year-to-date decline to 33.96%.

All three research houses tracking the stock have “buy” ratings with target prices between 52 sen and 71 sen.

Its bread-and-butter business is the lucrative national single window (NSW) for trade facilitation, which acts as a single online portal for exporters and importers to clear all necessary customs procedures.

While DNEX developed the system, which makes up 45% of earnings, its concession expires in September 2019 and it may lose its monopoly after that.

It is pursuing a diversification from government contracts and that has taken it into oil and gas, among others.

DNEX is also acquiring a 51% stake in Genaxis Sdn Bhd for RM10 million, which comes with a profit guarantee. Executive deputy chairman Datuk Samsul Husin previously told The Edge that the new acquisition will have “quite a significant” impact on DNEX’s bottom line beginning this financial year.

Gadang Holdings Bhd

Last Friday, Gadang closed at 81.5 sen per share, its lowest point since July 2016. That marks a 28.95% drop since the start of the year.

At the time of writing, its price-earnings ratio (PER) stood at a meagre 3.62 times. The share price drop has pushed its yield to 3.7%, according to Bloomberg data.

Back in January, when the PER was roughly double at seven times (share price at RM1.14), RHB Research called the PER level “undemanding” and “unwarranted”.

It cited Gadang’s RM1.6 billion in outstanding construction order book, which should sustain earnings for the next three years. Meantime, its lacklustre property business was already priced in at the time, RHB said.

Gadang is vying for contracts from the Light Rail Transit Line 3 project and Pan Borneo Sabah highway construction to replenish its orderbook.

All three research houses tracking Gadang have buy calls on the stock, with target prices between RM1.48 and RM1.69.

Tasco Bhd

As the logistic theme play on Bursa Malaysia fizzled out, so is the interest in Tasco shares. The recent mid and small cap rout and the sharp rise on finance cost that ate into its earnings do not help either.

The stock has shed 23% to RM1.60 last Friday year to date. It hit record high of RM2.61 in May last year. It slid 28.3% over the past 12 months.

The company’s high gearing is a concern, in addition to slower than expected contribution from its newly cold chain business. Its gearing ratio shot up to 0.75 times as at Dec 31, 2017 from 0.15 times in March last year.

Nonetheless, Tasco could be at its reflexion point in next financial year ending March 31, 2019 when it will start enjoying the full impact of its cold chain business. Furthermore, its partnership with Yee Lee Corp Bhd to venture into full-fledged logistic solution is expected to bear fruits, should things pan out as planned.

Apollo Food Holdings Bhd

It has been a rough one year for Johor-based confectionary maker Apollo as its share price fell by 23.8% from a year ago to RM3.76, its lowest level since September 2015. The decline was in line with the decrease in its net profit since financial year ended Apr 30, 2016 (FY16).

However, with the selldown, the dividend yield of Apollo at 6.6% is at an attractive level for a company that has consistently recorded profit and positive operating cashflow. It is worth noting that the decline in its bottomline was mainly attributed to foreign exchange (FX) losses and the rising cost of doing business.

Its strong balance sheet and positive operating cashflow is also more than enough to support its total dividend payout of about RM20 million based on its average dividend payout of about 25 sen per share. As at Jan 31, 2018, the group’s cash and equivalent stood at about RM93.6 million.

Hup Seng Industries Bhd

Biscuit maker Hup Seng has fallen by 14.1% to RM1.04 last Friday from its one-year high of RM1.21 in May 2017.

At its current level, the group is trading at a trailing PER of 18.7 times, which is lower than its five-year average of 21.1 times. With its strong cash balance of about RM99 million, zero debt level and positive operating cashflow, Hup Seng’s dividend yield of about 3.9% also makes it an attractive counter for investors with a long-term horizon amid the noises surrounding a potential trade war between US and China.

It is worth noting that the group’s net profit has fallen by about 9.9% to RM44.5 million in its financial year ended Dec 31, 2017 (FY17) from RM49.4 million in FY16. The profit performance was depressed by escalating input costs and higher promotional costs. Nonetheless, Hup Seng has a strong track record with a five-year compounded annual growth rate (CAGR) of about 6.5%.