Hidden gems in Bursa Malaysia

FOLLOWING the recent run-up on the KL stock market, would there be still many undervalued stocks with potential?

“Yes, there are some like Tenaga Nasional, banks which are still undervalued although prospects are weakening, and plantations as El Nino is supposed to hit hard,” said Chris Eng, head of research, Etiqa Insurance and Takaful.

“There are not many screaming buys left after the recent run-up but Maybank, IJM and Genting Bhd as well as some small caps like Yee Lee and Sunway REIT are good ones,” said Vincent Khoo, head of research, UOB Kayhian.

A stock with domestic exposure, low cost of production and high return on equity is Teo Seng, said a senior analyst.

Due to some very bearish views on property, certain property stocks have been bashed down.

“UEM Sunrise was at a 70% discount to its revalued net asset value which is very steep. It should be at a reasonable 50% which means it has an upside of 50%,” said Danny Wong, CEO, Areca Capital, who also sees value in LBS Bina.

There are concerns that property prices still on the high side.

“I am worried about property, looking at the unsold properties and non-performing loans creeping up in commercial real estate, although in small amounts, over the past one-and-half years,” said Pong Teng Siew, head of research, Inter-Pacific Securities.

Wong agrees there may be an oversupply issue in some high-end condominiums but he does not think there is a property bubble.

Plantation stocks have been coming to the fore in the recent run-up.

Khoo sees a moderate upside for plantation stocks on the advent of El Nino which brings about substantial dry weather, but he is not bullish on hard commodities.

“Generally, I think some Bursa stocks are undervalued due to poor sentiment and this includes plantation stocks. If sentiment returns to normal, I believe these stocks will rebound. But there are other sectors that have better value,” said Wong.

“One can take a quick ride on the technical rebound of commodities that includes metals like aluminium. These are evident in the rise of Felda Global Ventures and Press Metal,” said the senior analyst.

This commodities rebound may last for a month; there will probably be a short spike up for the stockmarket, supported by government funds and to some extent, more stability in the China markets, said the senior analyst.

A note of caution: when the price of crude palm oil reached RM4,000 per tonne in 2008, many companies had planted a lot of palm oil which takes seven to eight years to reach peak production.

“That is hitting us now,” said Pong Teng Siew, head of research, Inter-Pacific Securities.

The US Fed’s holding off on interest rate hike is viewed as potentially offering some reprieve for the ringgit but the upside for the KL stock market may be modest, as emerging markets are still struggling, said Khoo.

“Temporarily, it will allow the rally on the KL stockmarket to continue,” said Pong, who views that the US Fed may be too late to raise rates in this cycle as a recession will possibly arrive before they will seriously consider raising rates.

Moreover, US economic data is seriously weakening, adds Pong.

Khoo thinks the Fed will hike rates this year but it should be obvious to the market that the depth of the hike in this cycle will not be big.

“I do see a chance for the Fed to at least narrow the Fed rate band (for example, fix it at 0.25% instead of a range) by year end. I hope it will be normalised to 2% in a steady manner by 2016. The longer it delays, the worse it will be for markets and currencies,” said Wong.

(As of Dec 16, 2008, the Fed funds target rate was changed in the form of a 75 to 100 basis point cut from 1.0% to a range of zero to 0.25%).

Independent economist Lee Heng Guie sees an even chance of the Fed lift-off happening this year as the committee sees the risks to the US economic outlook and labour market as nearly balanced.

“In fact, the Fed has upped its economic outlook projection and expects the unemployment rate to tick lower,’’ said Lee.

“If external global conditions had not deteriorated further, US fundamentals would have been ready for a small hike this year.”

Peck Boon Soon, head of Asean research, RHB Institute, views the ringgit could appreciate marginally in the near term; however, concerns over the budget deficit and narrowing current account surplus due to depressed crude oil, liquefied natural gas and other commodity prices as well as political issues could dampen the outlook for the ringgit.

Columnist Yap Leng Kuen sees more causes of concern arising from the Fed’s decision to stay put on rates.