Mid-cap stocks stellar performers in battered market, index increases 24%

FBM MidS has seen a 2,765.32-point increase amid a growing market capitalisation of RM46.2b


While the attention has been on the fallout of the country’s stock market with the benchmark index shedding about 250 points from its high of 1,896 points a year ago and more than RM150 billion being erased from the market, mid-cap stocks bucked the trend.

The FTSE Bursa Malaysia MidS Cap Index (FBM MidS), which comprises small and medium companies with a market capitalisation of RM200 million to RM2 billion, is up 24% year-to-date.

The FBM Mid 70 Index, 70 of the largest companies after blue-chip stocks, is 12.65% higher this year with a total market cap of RM352.73 billion.

In contrast, the large-cap stocks weighted the FBM KLCI down by 3.11% as of April 26.

Analysts and investors believe that mid-cap stocks tend to be overlooked in favour of more mature, large-cap stocks and fast-growing small-cap stocks. But as a group, they have been showing good performances.

A check on Bloomberg shows that top-performing mid-cap counters’ share prices have risen to 85% this year.

The FBM MidS, the benchmark index for mid-cap stocks, has seen a 2,765.32-point increase amid a growing market capitalisation of RM46.14 billion.

The best performing stock of the FBM MidS is plantation giant FGV Holdings Bhd, rising as much as 85.61% to a high of RM1.32 last week, its highest since November 2018.

The company’s shares have been under pressure since the change of government last year due to poor governance and financial management under the previous government.

FGV swung to a net loss of RM208.8 million in the fourth quarter of last year, from a net income of RM50.4 million a year earlier.

However, with renewed interest among investors, its share prices have been on an upward trend.

Earlier this month, AllianceDBS Research had a ‘Buy’ call on FGV, with a target price (TP) of RM1.75. “It is in the government’s best interest for FGV to do well since the Federal Land Development Authority (Felda) owns a 33.6% stake in FGV.

The government intends to enhance corporate governance at Felda and FGV. This bodes well for FGV,” the research house said.

The consensus one-year TP for the company is RM1.17 for a potential loss of 9.6% and has been raised by 20% in the past three months.

FGV trades at 61 times its estimated earnings per share (EPS) for the coming year and has a market capitalisation of RM4.71 billion.

Other stocks that have reported significant increases over the last four months are Lafarge Malaysia Bhd (76.5%), MyEG Services Bhd (74.4%), Malaysian Resources Corp Bhd or MRCB (73.55%) and Velesto Energy Bhd (72.22%).

Lafarge, a cement manufacturer, has been on the rise ever since news on the East Coast Rail Link revival came about.

The company’s trading volume was more than triple the 20-day average and the relative strength index on the stock was above 70, indicating it may be overbought.

According to Bloomberg, Lafarge’s stock rose for the sixth straight day, up 38% in the past five days and rose 41% in the past 30 days.

The consensus one-year TP for the company is RM1.92, for a potential loss of 40%. The TP has been raised by 2.7% in the past three months.

As for MyEG, which has been in the spotlight for being connected to the previous administration, last year was quite a bumpy ride.

The company has been under investigation for a potential monopoly by the government.

In terms of year-on-year comparison, MyEG has declined 36% in the past 52 weeks, but has been on a slow road to recovery.

Its shares have gained 0.6% in the past five days and have risen 16% in the past 30 days. MyEG trades at 21 times its estimated EPS for the coming year.

The consensus one-year TP for the company is RM1.72 for a potential return of 5.9% and the target has been lowered by 10% in the past three months.

As for MRCB, the revival of the Bandar Malaysia project has potentially unmasked meaningful catalysts for the company.

MIDF Research last week maintained a ‘Buy’ call on MRCB with an adjusted TP of RM1.05 from 90 sen previously.

It said, while details of the Bandar Malaysia project are still scarce, it believes opportunities are ample given the latest gross development value estimation of RM140 billion.

On that note, MIDF saw that MRCB is well positioned to participate in this project, highlighting the group’s track record in building PJ Sentral and Kuala Lumpur Sentral as a transportation developer.

In addition, MIDF Research noted that the group has recently won a RM323 million contract for the construction of the Sungai Besi-Ulu Klang Elevated Expressway.

“Accordingly, the amount is added to the previous unbilled jobs to arrive at a RM21.8 billion outstanding orderbook.

“The outstanding amount is huge, which will keep the group busy in the long term,” it said.

For its construction division, however, the research arm believes a temporary drag could come from the delayed progress of the Light Rail Transit Line 3, which will commence in the second half of the financial year 2019 (FY19).

“While the concern should not be overlooked, we think the impact is manageable.”

As of last Friday, its shares rose 0.9%, while trading volume tripled. Its stock has advanced 7% in the past 52 weeks, 11% in the past five days and 27% in the past 30 days.

MRCB trades at 38 times its estimated EPS for the coming year.

Meanwhile, rig operator Velesto has been advancing over 9.1% in the past 52 weeks, trading 100 times its estimated EPS for the year.

The consensus one-year TP for the company is 0.35 sen for a potential return of 16%, and the target has been raised by 19% in the past three months.

Recently, the company announced that it has bagged four jack-up drilling contracts from Petronas Carigali Sdn Bhd with an estimated combined value of US$104.68 million (about RM433.07 million).

CIMB Research has maintained its ‘Add’ rating on Velesto at 30 sen with a higher TP of 32 sen (from 28 sen) and said Velesto has increased its contracted utilisation rate forecast for FY19 to 66%, up from 38% just two months ago in February 2019, closing in on its 80% forecast.

On an April 18 note, CIMB Research said with greater visibility, lower business risk and Petroliam Nasional Bhd’s (Petronas) apparent resolve to increase drilling activity in Malaysia, the research house reduced its equity beta from 1.5 to one.

“Cost of equity is lowered from 13% to 10.6%, which raises the discounted cashflow-based TP to 32 sen. Maintain ‘Add’ as we expect even more contract wins,” it said.