Sarawak-related stocks in the spotlight on state election, growth theme

Counters like Naim, Ta Ann and Zecon performed well, attributable to their improved financial results in the September 2019 quarter


SARAWAK-RELATED stocks appear to be on the rise due to the strong potential of economic growth in the state and the looming state election, market experts observed.

The spotlight is shining on Sarawak counters mainly due to investors’ interest being piqued by the upcoming state election, Pheim Asset Management Sdn Bhd CEO and CIO Leong Hoe Kit said.

“Recent market price movements seem to support the grapevine that investors are betting on, a seismic shift in the Sarawak corporate scene with regards to state government contracts, as seen in recent movements in the share price of Sarawak Consolidated Industries Bhd (SCIB) compared to more ‘traditional’ counters like Cahya Mata Sarawak Bhd (CMSB).

“Market rumours such as these are next to impossible to verify, but from an independent and unbiased view, we can see that the recent gains in share price are concentrated in only a few counters like SCIB, Kumpulan Powernet Bhd (KPower) and Dayang Enterprise Holdings Bhd,” he told The Malaysian Reserve recently.

This is more likely due to investors’ strong belief in the professional leadership and management capabilities of Serba Dinamik Holdings Bhd founder and group MD/CEO Datuk Mohd Abdul Karim Abdullah, who currently owns significant stakes in these stocks.

“Other counters like Naim Holdings Bhd, Ta Ann Holdings Bhd, Zecon Bhd and KKB Engineering Bhd also did well recently and this can be attributed to their improved financial results, especially in the September 2019 quarter,” Leong added.

Although governments cannot entirely control the performance of any counter, there is room for them to influence companies’ performances by implementing policies that are supportive and pro-business.

To promote a vibrant market, Leong believes open tender contracts for government projects will benefit the economy more by getting the most efficient and qualified company to carry out the job instead of any preferential treatment or award of contracts.

“In this respect, I believe only the most efficient companies stand to win any government contracts in Sarawak, even in the light of the fact that the state election is coming soon,” he said.

Though Sarawak is rich in natural resources, there remains plenty of room for economic growth in the state.

Sarawak contributed 9.7% to national GDP in 2018, making it the third-largest contributor behind Selangor (23.7%) and Kuala Lumpur (16.1%), according to data from the Department of Statistics Malaysia.

It also recorded the highest state government revenue in 2017 of RM6.9 billion, followed by Sabah (RM3.9 billion) and Selangor (RM2.8 billion).

Investors have come to realise the potential of the state’s economic growth, which has contributed to the recent increased interest in Sarawak-based or related counters.

“Having said that, corporate governance will usually lead to better profits and better profits will ultimately attract investors’ interest,” Leong said.

Investors should adopt a selective stock-picking approach as far as Sarawak-based or related counters are concerned.

“Those counters where valuations have run up very high should be trimmed if they have become overvalued.

“Meanwhile, there are some counters which are fundamentally sound with good potential earnings growth and have low gearing, but where their valuations are still relatively cheap (for example in terms of price-to-book and price-to-earnings ratios), these are the counters that investors should focus on,” Leong stated.

As of yesterday, while SCIB shares fell 6.31% or 20 sen to RM2.97 — the most in almost 16 weeks — the stock has advanced 494% in the past 52 weeks.

CMSB shares fell 5.48% or 12 sen to RM2.07, the most in almost six months.

KPower fell 0.34% or one sen to RM2.91 yesterday, but the stock has advanced 547% in the past 52 weeks.

Dayang Enterprise shares which fell 1.05% or three sen to RM2.83 has seen its stock advanced 267% in the past 52 weeks.

Naim shares fell 0.75% or one sen to RM1.33 at close yesterday, but the stock has advanced 93% in the past 52 weeks.

Ta Ann fell one sen to RM3.19 after advancing 29% in the past 52 weeks, while Zecon fell 3.97% or 2.5 sen to 60 sen after having advanced 147% in the past 52 weeks.

KKB Engineering Bhd shares rose 1.06% or two sen to RM1.91 after having advanced 84% in the past 52 weeks.