High-flying stocks

Frontken Corp Bhd

Frontken Corp Bhd keeps setting new highs making it a clear winner against the lacklustre sentiment on the local bourse. The group specialises in services such as precision cleaning, refurbishment and coating to the semiconductor industry.

The stock soared a whopping 233% since closing at 69.5 sen on Dec 31, 2018, and 737% since it was picked at the beginning of 2H19 as a likely performer.

Frontken’s market capitalisation ballooned by RM1.67 billion in 2019 to now value the group at RM2.41 billion.

At its current share price, the stock is trading at a price-earnings ratio (PER) of 34.59 times, while return on equity (ROE) stood at 20.79%.

In an interview with The Edge Financial Daily in March, Frontken chairman cum chief executive officer (CEO) Nicholas Ng attributed the group’s aggressive bottom-line growth to its continuous investments in research and development, which he described as a crucial cost-saving measure.

Notably, Frontken has notched record earnings annually and has seen its pre-tax profit margin expanding to 23.1% as at its financial year ended Dec 31, 2018 (FY18), from 9.1% in FY14. It started paying dividends to shareholders in FY17 after a five-year hiatus.

Maybank Investment Bank Research analyst Kevin Wong nudged up Frontken’s FY19 to FY21 earnings estimates by 2% to 7% after assuming higher work orders in the semiconductor segment at its Singapore and Taiwan units, as well as in the oil and gas (O&G) segment, which includes the ramp-up of repair and maintenance works for its key customer’s new equipment.

Pentamaster Corp Bhd

Pentamaster Corp Bhd is undoubtedly one of the best-performing players among its technology peers, in terms of share price and earnings.

The automated test equipment  manufacturer was picked on expectations that it may see more business on the potential trade diversion coming from the ongoing China-US trade war.

Even with zero dividend payouts, shareholders are probably enjoying the strong growth performance on the company’s share price.

YTD, the stock has rallied some 150.9%, from RM1.83, to close at RM4.60 yesterday. On its half-year performance, the counter grew some 58%, from RM2.88. Notably, Pentamaster peaked to an all-time high of RM4.92 in October.

Despite facing some headwinds, such as the US first blacklisted Huawei Technologies Co Ltd and when the counter was excluded from the syariah-compliant list, Pentamaster’s shares were quick to bounce back.

On earnings, for the cumulative nine-month period, its net profit increased 58.27% to RM60.59 million or 12.76 sen per share, from RM38.28 million or 8.06 sen per share last year, while revenue grew 17.47% to RM364.13 million, from RM309.98 million.

In an interview with The Edge Financial Daily in May, its co-founder and chairman Chuah Choon Bin said he was expecting another record earnings year with double-digit growth in FY19, amid the current challenging and volatile market situation.

MyEG Services Bhd (MyEG)

Shares in MyEG, which started off on a good note in the earlier part of 2019 after being battered down badly in 2018, did not manage to sustain the momentum. The counter shot up some 82% at RM1.75 on April 24, from 96 sen at the start of 2019 before it reversed its upward trend.

Nonetheless, the counter was still some 16% higher to close at RM1.13 on Dec 24, YTD.

In the 12-month period ended Sept 30, 2019, its net profit came in at RM235.31 million with a revenue of RM476.25 million. There are no comparative figures for this period as the group changed its financial year end from Sept 30 to Dec 31.

In the same 12-month period ended Sept 30, 2018, MyEG’s net profit stood at RM76.24 million, while revenue was at RM466.53.

During the year, its chairman Datuk Norraesah Mohamad ceased to be a substantial shareholder of the company after disposing of a 23.25% indirect interest or 810.11 million shares as at July 25. She remains a shareholder with a direct interest of 0.75%.

Dialog Group Bhd

O&G counters have enjoyed a good run this year and Dialog Group Bhd shares the cheers.

Dialog continued its climb although the gain is not as great as other O&G counters given that the stock has been moving up in the past few years, while its peers were being hammered.

The counter closed at RM3.46 on Christmas Eve, up 11.25% from last year’s closing of RM3.075.

Dialog is currently trading at a PER of 33.27 times, still there are 14 “buy” calls among the 18 analysts covering the stock, with an average target price (TP) of RM4.06, Bloomberg data shows.

Unlike other O&G players, the company, which has exposure to all three upstream, midstream, and downstream sectors of the O&G industry, has managed to log steady profit growth although revenue fell, thanks to its continuous strong performance of its business segment on top of a fair value gain arising from a business combination of a jointly-controlled entity to a subsidiary.

In its first quarter ended Sept 30, 2019, Dialog turned in a net profit of RM164.64 million, up 43.6% from RM114.64 million a year ago, while revenue slipped 6.5% to RM645.76 million from RM690.89 million before.

UEM Edgenta Bhd

Facilities management company UEM Edgenta Bhd, selected as one of our top picks for being “a good defensive play”, was unable to sustain its uptrending share price which started in the middle of the year.

The counter soared to a three-year high of RM3.52 on Sept 30, before falling as much as 15% to close at RM3.03 yesterday. Still, UEM Edgenta climbed some 11.4% YTD.

For the nine-month financial period, UEM Edgenta’s net profit grew 4.7% to RM84.3 million, from RM80.51 million last year, while revenue rose 10.7% to RM1.7 billion from RM1.54 billion. The company noted that the “growth in profitability was muted mainly on the back of external headwinds faced [by] its infrastructure-related businesses”.

Hong Leong Investment Bank Research (HLIB), commented on Nov 25 that the stock continues to have a good exposure to a stable earnings stream at reasonable valuations trading at FY20 to FY21 PER of 16.1 to 15.6 times with a dividend yield of 4.3% to 4.5%. “We like Edgenta for its defensive earnings profile and pivot towards healthcare support services regionally,” said HLIB.

In September, UEM Edgenta’s managing director and CEO Datuk Azmir Merican told reporters that the company will be banking on its healthcare support business to drive growth going forward, as it eyes new tenders in Singapore amid the government’s move to recluster healthcare facilities.

Not-so-good picks

Supermax Corp Bhd

Despite being one of our top picks for its attractive valuation among its peers in the rubber glove industry, Supermax’s share price continued to decline over the past year.

Still, the counter’s valuation appears to remain unjustified when compared with its peers. A quick check on its PER (trailing 12 months) shows that Supermax stood at 16.43 times, while Hartalega Holdings Bhd has a PER of 43.7 times, Top Glove Corp Bhd and Kossan Rubber Industries Bhd has PER of 33.3 times and 27.6 times respectively.

With eight research houses covering the stock, seven of them have “buy” calls and one with a “neutral” recommendation. According to Bloomberg data, it has a consensus TP of RM1.77, which presents a 27% upside to the stock.

Supermax share price fell some 18.3% YTD to RM1.40 yesterday, from RM1.70 end-2018. This brings its market capitalisation to RM1.81 billion.

Supermax chairman Albert Cheok told reporters after its annual general meeting in November that the company is optimistic about doing well this year despite global headwinds and their impact on selling prices, albeit the fall in net profit for its first quarter ended Sept 30, 2019.

Cheok said the drop in the group’s 1Q net profit is not indicative of the group’s performance this year, but was because of lower average selling prices and higher production costs.

Supermax saw a 31% fall in 1Q net profit to RM24.75 million, from RM35.94 million in the same period last year, while revenue grew to RM369.94 million from RM367.05 million, on global sales of the group’s natural rubber and nitrile rubber gloves.

Bermaz Auto Bhd

Bermaz Auto Bhd (BAuto),the official distributor of Mazda cars in Malaysia, was one of our top picks for being the favourite among analysts covering the counter. It was a screaming “buy” call from all 14 analysts at the time the counter was selected.

However, after reaching an all-time high of RM2.63 on July 16, the counter has been on a downhill to close at RM2.11 yesterday. For 2H19, its share price was down some 19%. Over the past one year, the stock was up 0.82%.

Its falling share price in 2H19 was no surprise as its earnings did not fare well. Its net profit fell 72% for 2Q ended Oct 31, 2019 to RM20.39 million from RM73.92 million, while revenue shrunk 34% to RM457.17 million, from RM690.32 million. This was largely due to lower contributions from domestic operations as well as from its associate company Mazda Malaysia Sdn Bhd.

For the six-month period ended Oct 31, BAuto’s net profit slid 42% to RM70.9 million from RM123.2 million a year ago, while revenue fell 16% to RM992.21 million from RM1.18 billion.

Nonetheless, despite the unfavourable downtrend in share price — especially since mid-2019 — shareholders of BAuto could take comfort that the counter still presents an attractive dividend yield of 6.9%. The group recommended a second interim dividend of 2.75 sen per share, payable on Feb 17, 2020, bringing the total dividend for 1H of FY20 to six sen.

On prospects, in its most recent results announcement to Bursa Malaysia, BAuto is optimistic about the recent launch of its all-new Mazda 3, Mazda CX-8, and the Mazda CX-5 (which includes the 2.5L Turbo variant in Malaysia) and the expected launch of the all-new Mazda CX-30 during the coming quarter.

In the Philippines, it plans to capitalise on the absence of excise duty on pickup trucks to bring in its new Mazda BT-50 model in FY21.

Malayan Banking Bhd (Maybank)

Analysts noticed that value had emerged in Maybank after the banking group deployed new technology and data analytics to transform the way it manages risks. Analysts believe this will help to sustain the group’s earnings going forward.

Investors, however, did not seem convinced, as the biggest Bursa Malaysia stock by market value remained under pressure, hitting a one-year low of RM8.27 in mid-August.

The stock made up its lost ground to finish at RM8.72 yesterday, on a YTD basis, Maybank lost 8.21% of its value to the current market capitalisation of RM98.02 billion and an undemanding P/B of 1.24 times. However, shareholders may find comfort in the 6.5% dividend yield offered by Maybank, the highest among peers.

Financial stocks, with the largest weightage on the KLCI, have been a drag this past year as most took a hit from expectations of a slowing economic growth as well as key interest rate and Statutory Reserve Requirement ratio cuts that may impact traditional banks’ net interest margins.

For Maybank, its net profit slipped a mere 0.65% to RM5.75 billion for the first nine months of 2019, from RM5.79 billion for the year-ago period. Its revenue rose to RM39.86 billion from RM35.09 billion previously.

KPJ Healthcare Bhd

KPJ Healthcare Bhd, although some viewed it as undervalued given its stable earnings, has not seen much price action since 2H19.

While its stock price remains flat from when it emerged as a worthy stock to buy, KPJ is down some 9.62% year-on-year to 94 sen yesterday, despite the hospital chain operator’s record-high revenue for 3Q ended Sept 30, 2019.

For the quarter, KPJ’s net profit grew 12.4% to RM46.41 million from RM41.3 million, lifted by a record-high quarterly revenue and stronger contributions from associates, and improving earnings per share to 1.1 sen. Its revenue expanded 10.47% to RM906.44 million from RM820.56 million previously.

At its current price, KPJ is trading at a PER of 21.58 times, while its price-to-book value (P/B) is at 2.35 times. Based on Bloomberg data, KPJ’s indicated dividend yield stood at 2.15%.

KPJ — whose geographical footprint spans five countries in Asia-Pacific (with 26 specialist hospitals in Malaysia; four hospitals in Indonesia, Thailand and Bangladesh; and senior and assisted living care in Australia and Malaysia) — has a five-year ROE average of 10.25% per year.

Kossan Rubber Industries Bhd

The rubber glove maker did not start  well this year, plunging nearly 20% to a low of RM3.34 in 1Q.

However, the stock did not stay in the doldrums for long, bouncing back to a high of RM4.30 later in the year. It closed at RM4.25 yesterday; it has gained barely 3.23% YTD. The gain may not be impressive, however, the stock has outperformed its bigger rivals such as Top Gloves Bhd and Hartalega Bhd, which have trended downwards in 2019.

Kossan Rubber’s share price performance was quite a contrast to expectations that Malaysian glove makers were seen as beneficiaries of the US-China trade war after the US signalled a 10% tariff on China-made gloves in July.

Nonetheless, the ease of industry oversupply concerns, and the scheduled completion of Kossan’s new Plants 18 and19 this year, which were set to add another 5.5 billion pieces per annum to capture a rising global demand since June, helped the stock recoup most losses.

A weakening of the ringgit against the US dollar also played a part as this benefited export-oriented counters, including Kossan. At the time of writing, the ringgit was traded at 4.1363 against the greenback.

For the first nine months of 2019, Kossan’s net profit grew 15.9% to RM163.78 million or 12.81 sen per share, from RM141.27 million or 11.05 sen per share last year. Its revenue rose 5.7% to RM1.64 billion, from RM1.55 billion.

Kossan said its improved performance for the period was due to a higher demand growth for the group’s glove products, with higher volume sold (+9.21%) from an increased production output, as well as an increased manufacturing efficiency and effective cost controls.