KUALA LUMPUR (Feb 14): RHB Research has named its 12 regional environmental, social and corporate governance (ESG) stock picks for 2023, four of which are listed on Bursa Malaysia.

In a regional thematic note on Tuesday (Feb 14), RHB pencilled in Press Metal Aluminium Holdings Bhd (buy; target price (TP): RM6.18), Sunway Construction Group Bhd (SunCon) (buy; TP: RM2.07), TIME dotCom Bhd (neutral; TP: RM5.30), and Samaiden Group Bhd (buy; TP: RM1.06) among its regional ESG stock picks. 

RHB noted that the stock picks selected by its analysts are based on the following criteria: a return-on-equity (ROE) of 15% or above, 2023 net debt or shareholder funds of less than 0.7 times, a higher year-on-year margin in 2023 versus 2022, trading below respective industry average multiples, and having an ESG score above their country medians.

Press Metal, buy, TP at RM6.18

According to RHB, aluminium refiner Press Metal has an ESG score of 3.44, given that its carbon footprint ranks among the best in the global aluminium industry, with zero recorded workplace injuries and fatalities for two consecutive years, and a good level of transparency afforded by its reporting framework. 

The research firm forecast a commendable ROE of 36.6% for the financial year ending Dec 31, 2023 (FY2023), and 29.9% for FY2024, compared with 33.6% in FY2022, as it expects the company’s earnings growth to remain intact, backed by growing demand for aluminium.

“Press Metal’s PT Bintan Phase 2 is currently 84% completed. The first 500,000 tonnes per annum portion of production is now operational, and this has increased production volume progressively since,” RHB analyst Oong Chun Sung said, adding that upon completion, another one million tonnes will be added to Press Metal’s refining capacity.

In view of the expected completion of PT Bintan Phase 2’s construction, Oong does not expect Press Metal’s borrowings to spike in 2023, and its net debt should be maintained close to 0.7 times.

Meanwhile, the RHB analyst expects Press Metal’s margins to improve, spurred by the reopening of China, the world's largest consumer of aluminium, which should lift sentiment and support demand.

“Press Metal is trading at 20.7 times FY2023 price-earnings ratio (PER), which is still well below its historical mean of 26 times, but is 45% above the global peer average of 14.2 times,” Oong added.

At the noon break on Tuesday, shares in Press Metal were up 12 sen or 2.33% at RM5.27, giving the company a market capitalisation of RM43.42 billion.

SunCon, buy, TP at RM2.07

RHB said construction outfit SunCon holds an ESG score of 3.2, underpinned by the RM8.8 million worth of rooftop solar panels lining the roofs of its plants to reduce carbon emissions, coupled with a lower injury rate due to safety and health initiatives, and 62.5% of its board being independent members.

“We forecast a commendable ROE of 21.1% for FY2023, versus 17.2% in FY2021,” RHB analyst Adam Mohamed Rahim noted, saying the research house believes earnings growth in FY2023 will be mainly driven by higher progress billings from ongoing projects, including the Light Rail Transit 3, the Johor Bahru-Singapore Rapid Transit System Link, as well as the newly won RM1.7 billion Sedenak Tech Park data centre job.

The RHB analyst has pegged SunCon to have a net debt of 0.3 times in FY2023, noting that following SunCon’s completion of its integrated precast hub in Pulau Punggol in late 2022, the research house does not expect the company to fork out any major capital expenditure over the next few years.

As for net profit margins, Adam expects it to be at 5% in FY2023, attributable to the visible pipeline of projects from Sunway Bhd, SunCon’s parent company, which is over 30% of its outstanding order book.

“SunCon is trading at an undemanding 12.7 times FY2023 PER, which is -1.5 standard deviation from the five-year mean of 15.5 times,” he added.

Shares in SunCon were unchanged at RM1.65 at Tuesday’s noon break, giving the company a market capitalisation of RM2.13 billion.

TIME dotCom, neutral, TP at RM5.30

According to RHB, internet service provider TIME dotCom has an ESG score of three, backed by its key role in advancing the government’s affordable and quality broadband connectivity aspirations, with 50% of its board members being independent, and its fibre optic cables requiring little maintenance with little emission risks, though this is offset by its data centre business’ energy consumption.

RHB analyst Jeffrey Tan projects TIME dotCom to post an ROE of 13.5% for FY2022, and 16% for FY2023, from 12% in FY2021, supported by stronger earnings growth from continued expansion of its fibre footprint, higher utilisation of data centres, and increased cloud offerings demand.

“The group had a net cash balance of RM282 million as at the nine months ended Sept 30, 2022, with over RM2 billion in cash proceeds expected from the proposed sale of up to a 70% stake in AIMS Group to DigitalBridge,” Tan added.

He continued that TIME dotCom’s margins are expected to remain relatively steady, supported by good cost vigilance, operating efficiencies, and some recovery in regional bandwidth sales.

“The group posted a commendable core earnings compound annual growth rate (CAGR) of 14% for FY2017-21, on the back of a corresponding revenue CAGR of 10.2%,” he added, noting that the valuation of the stock is in line with its domestic telecommunications peers at about 10 times earnings before interest, tax, depreciation and amortisation.

TIME dotCom shares were up one sen or 0.19% at the noon break, valuing the company at RM9.76 billion.

Samaiden, buy, TP at RM1.06 

RHB said solar engineering, procurement, construction and commissioning contractor Samaiden is equipped with an ESG score of 3.2, as it ensures compliance with environmental laws and regulations, has built a conducive work environment, and adopted the majority of best practices of the Malaysian Code on Corporate Governance.

RHB analyst Lee Meng Horng forecast Samaiden to achieve an ROE of 19.9% for FY2023, and 20.7% for FY2024, versus 17.7% in FY2022, driven by higher net margins stemming from a decline in photovoltaic module cost, as well as the group’s earnings growth.

“Samaiden has maintained a sound financial position since its listing, and as of Sept 30, 2022, its net cash stood at RM73.6 million,” Lee said, but noted that RHB is cognisant of Samaiden’s intent to expand its asset base, which may increase its debt levels in FY2023-24.

“[Samaiden] is trading at a discount to its Malaysian utility peers at 13 times FY2024 PER versus 14 times,” Lee continued, adding that RHB believes the stock is trading at an undemanding valuation, given the group’s three-year 33.8% earnings CAGR driven by its sturdy order book growth.

At the noon break, shares in Samaiden were unchanged at 86.5 sen, giving the group a market capitalisation of RM331.07 million.