25 Stocks for 2010

25 M'sian stocks that are expected to outperform the FBM KLCI

Standard & Poor’s recently issued a comprehensive report on Malaysia and the 25 top stocks it was looking to outperform the market in the Year of the Tiger. Below is an excerpt of that report.

We maintain FBM KLCI target at 1,400 points in 2010 for an 11% return, pricing the index at 16 times market consensus earnings for this year.

Based on valuation grounds and growth prospects, we are “overweight” on the banking and healthcare sectors in Malaysia. We are “underweight” on the telecoms sector.

1. Genting Bhd

We like Genting for its wide experience in the casino business, expanding footprint and financial strength.

It offers exposure to the integrated resort in Singapore, which will be a significant contributor to earnings over the medium term, while domestic casino operation will provide relatively stable earnings.

The management continues to seek casino opportunities elsewhere to expand its footprint further.

Valuations are not demanding at current level with the stock trading at a discount of about 20% to its sum-of-parts value.

11. CIMB Group

CIMB Group is our pick of the Malaysian banks for relative and absolute outperformance this year.

Our 2010 net profit forecast suggest earnings growth of 24.3%, which comfortably beats the average sector growth of 19.9%.

CIMB remains attractive for its established consumer banking business, strong investment banking franchise and dynamic management. It also has the most developed and best resolved regional banking strategy.

12. SP Setia Bhd

We like SP Setia for its good track record in generating sales even in difficult times, and its ability to enhance the value of its landbank through innovative products.

Its landed residential projects are strategically located in three major states in Malaysia – Penang, Johor and Selangor – as well as in Vietnam.

In addition, it will soon diversify and enlarge its earnings base to include commercial development with the launch of its mega RM6bil Kuala Lumpur EcoCity along Jalan Bangsar in October.

21. Malaysia Steel Works (KL) Bhd (Masteel)

After a difficult 2009, we expect the local steel sector to benefit from increasing domestic project implementation this year and a rising average selling price.

Masteel remains one of the cheapest steel stocks, with an estimated 2010 PER below six times against peer average of 8.5 times.

24. Axiata Group

We like Axiata for its vast geographical reach in Asia’s fast-growing mobile markets and good earnings growth potential.

Its group-wide ongoing reform, which includes its cost-down initiatives and emphasis on profitability, are nicely panning out and should help support earnings growth, moving forward.

At the current price, the stock is trading at 2010 and 2011 PERs of 13.2 times and 12.2 times respectively. Valuations are attractive, in our opinion, particularly given Axiata’s growth potential and improved balance sheet.

25. Tenaga Nasional Bhd (TNB)

TNB’s earnings visibility has improved, with coal cost expected at US$85 a tonne in the financial year 2010 as 45% of requirements have been locked in at US$65-US$70 a tonne.

Meanwhile, electricity demand is recovering at a faster rate and is expected to exceed 3% year-on-year, driven by the pick-up in the industrial sector.

Foreign shareholding seems to have stabilised at 9.4% in November and December 2009 from the peak of 28.3% in April 2007.

Valuation is undemanding as compared to its peers and its historical trend.