拉希德侯赛因银行-马来西亚-投资策略-寻找潜力股：最好的投资策略-20180611-21页_889kb

Summary of "Finding Diamonds In The Rough" Report (11 June 2018)

Core Content

This report highlights 16 investment opportunities identified by RHB as "Diamonds In The Rough" across Malaysia, Thailand, and Hong Kong/China. These companies are selected based on a bottom-up fundamental analysis, incorporating on-the-ground insights from RHB's sector analysts. The key criteria used for selection include:

• Return on Equity (ROE) of 15% or above
• Increasing margins
• Trading below the average market multiples for their respective sectors
• Reasonable corporate governance

These stocks are currently undervalued and are expected to deliver robust earnings growth over time due to their strong fundamentals, potential for margin expansion, and strategic positioning in their markets.

Main Points

1. Methodology

• The report uses a bottom-up fundamental analysis combined with sector-specific insights.
• Companies are evaluated based on ROE, margin trends, valuation relative to sector averages, and corporate governance standards.
• The SOP-derived target prices reflect the potential upside for each stock.

2. Investment Recommendations

• All 16 listed companies receive a BUY recommendation.
• The potential upside for each company is highlighted in the table, with some stocks offering significant growth prospects (e.g., GSS Energy with 68.9% upside).

3. Valuation and Market Position

• The stocks are trading below sector valuations, suggesting undervaluation.
• This discount may be due to market sentiment, smaller market cap, or lower profitability compared to peers.
• Despite the discount, the companies have strong fundamentals and potential for future growth.

4. Corporate Governance

• All companies have reasonable corporate governance.
• Most have no restatements or changes in auditors.
• Independent directors make up a significant portion of the board, ensuring transparency and accountability.

Key Information

List of Diamonds (16 Stocks)

Country Breakdown

• Malaysia: 5 companies
• Thailand: 2 companies
• Hong Kong/China: 9 companies
• Singapore: 12 companies
• Indonesia: 16 companies

Key Companies and Their Highlights

• Bermaz Auto: Strong ROE, expanding margins, and a new SUV model expected to boost sales. Trading at 13.9x P/E, below the sector average of 15.3x.
• Cocoaland: High ROE, expanding margins, and a new production line set for late 2019. Trading at 13x P/E, below the Consumer Product Index.
• Dialog: High ROE from associate contributions, long-term contracts, and involvement in the RAPID project. Trading at 44.9x P/E, but with strong fundamentals.
• Serba Dinamik: High ROE from O&M services, diversification, and expansion plans. Trading at 11.4x P/E, lower than peers.
• SKP Resources: Strong ROE, expanding margins, and a solid balance sheet. Trading at 12x P/E, below the sector average.
• Major Cineplex: High ROE and dividend yield, expanding screen count, and low valuation relative to peers.
• TISCO Financial: High ROE, strong balance sheet, and focus on efficient cost management. Trading at 10.5x P/E, with high dividend yield.
• Chinasoft International: High ROE, expanding into cloud and AI, and moving up the value chain. Trading at 18x P/E, below sector average.
• China State Construction: Strong ROE, exposure to infrastructure growth, and low valuation.

Conclusion

The report underscores the potential of these 16 companies to deliver strong absolute returns over time, given their strong fundamentals, margin expansion opportunities, and undervaluation relative to sector averages. The companies are considered to have high growth potential and reasonable corporate governance, making them attractive investment targets. The BUY recommendations are based on the potential upside and sustainable earnings growth expected from these companies.