Technology and old economy stocks that gained the most since 2Q

Market capitalisation on the local bourse had risen 7% to RM1.6t as of Sept 9 compared to RM1.4t at end-March 2020


THE local stock market went through a period of unprecedented volatility, swinging over 400 points from mid-March after the World Health Organisation (WHO) declared the Covid-19 a pandemic.

According to Bursa Malaysia, market capitalisation on the local bourse rose 7% to RM1.62 trillion as of Sept 9 compared to RM1.37 trillion at end-March 2020 helped by the fiscal and monetary policy support announced across the world.

The FTSE Bursa Malaysia KLCI (FBM KLCI) rebounded 24% from its decade low of 1,207 points on March 19, 2020.

While the narrative of rubber glovemakers making substantial price and market capitalisation gains in the period, many companies, including blue chips, have risen in value since the second quarter (2Q) despite the expectations of it being a financially weaker quarter.

Bloomberg data also showed that 52.5% of 888 companies produced poorer 2Q’s performances on a year-on-year (YoY) basis.

On a quarter-on-quarter (QoQ) basis, a substantial 69.4% of companies reported weaker performances.

The Malaysian Reserve found five companies that have recorded significant growth in terms of market capitalisation.

The Soaring of Tech Firms

The rise of Nasdaq to historic highs has led investors to file into tech stocks on Bursa Malaysia.

Bursa Malaysia’s technology index is currently at a price-to-earnings (P/E) ratio of about 46 times, jumping 47% year-to-date to close at 54.11 points last Friday. Compared to its low in March, there has been a surge of 134%.

MI Technovation Bhd, as one of the sixteen Malaysian companies to have made it to Forbes Asia 2020 “Best Under A Billion” list, which recognises 200 top-performing small and mid-sized listed companies in the Asia Pacific, has a stellar year despite the market rout.

It is principally involved in the design, development, manufacture and sale of Wafer Level Chip Scale Packaging (WLCSP) sorting machines with inspection and testing capabilities for the semiconductor industry.

Its share price grew over 108% from RM1.88 in April this year to RM3.92 last Friday. Concurrently, its market cap swells by 201% to be valued at RM2.95 billion to date. Mi Technovation currently trades at 45 times its estimated earnings per share (EPS) for the coming year. The company’s dividend yield is 0.8% on a trailing 12-month basis.

The semiconductor firm recently reported a 4.17% increase in its net profit for the 2Q ended June 30, 2020 (2Q20), to RM18.1 million from RM17.38 million a year earlier, on higher sales, which pushed its revenue up.

Supercomnet Technologies Bhd is another company that has recorded a stellar growth since April this year, with its share price surging more than a 300% from 48 sen a piece to RM1.97 last Friday.

Initially a penny stock with a market cap of just slightly above RM300 million, today the original equipment manufacturer in the automotive cables and medical devices industry has a market value of RM1.27 billion.

Few of the company’s subsidiary Supercomal Medical Products Sdn Bhd’s key products are utilised in critical medical devices that are needed in the treatment of Covid-19 patients such as disposable bronchoscopes and the critical care monitoring cable that is presently being used for Covid-19 patients in the intensive care unit.

For its first financial quarter ended March 31, the group reported a 9.3% increase in net profit to RM4.1 million while its revenue grew 12.7% to RM28.15 million.

On July 10, the group announced that its latest catheter for cardiovascular use was approved and is now listed on the US Food and Drug Administration’s website.

The approval means that the company can now start manufacturing the catheter for its client — a Denmark-based company which is the exclusive distributor for several world-leading producers of medical devices.

Bloomberg data shows that Supercomnet trades at 42 times its estimated EPS for the coming year while the company’s dividend yield is 0.8% on a trailing 12-month basis.

Another stock that has surged over 290% since April this year is hard-disk drive (HDD) maker JCY International Bhd, with its market cap rising to RM1.56 billion to date.

JCY International trades at 29 times its estimated earnings per share for the coming year while the company’s dividend yield is 0.7% on a trailing 12-month basis.

Kenanga Research in a recent research note stated it expects JCY’s earnings to triple next year as it benefits from the massive upcycle in the HDD market.

The firm said the recent surge in web computing was just the beginning of a long-term secular demand for mass capacity storage, with the total addressable market estimated to rise from the current market size of US$12.5 billion (RM51.88 billion) to US$24 billion in 2025.

“We like JCY International for being a close proxy to the massive upcycle in the HDD market due to data centre expansion, able to enjoy higher order volume and average selling prices owing to supply chain consolidation, and proactive in diversifying revenue stream by venturing into the automotive market.

“The group’s net profit in the financial year 2021 (FY21) is expected to grow three times to RM150.8 million as it takes on higher loading volume in the second half of 2020 (2H20) and into 2021,” it said.

Kenanga Research said although current HDD prices had risen 16% over the same period last year, JCY International still remains the preferred storage medium due to cost factor.

Hong Leong Bank Bhd (HLB)

Since the end of March, HLB’s market cap has increased by 17% to RM32.04 billion from RM24 billion. Within the same period, its share price grew by 5% to RM14.80 a piece as of last Friday.

Unlike its parent company Hong Leong Financial Group Bhd, HLB posted a 10.53% YoY drop in net profit to RM569.42 million for its 4Q20 despite revenue growing to RM1.2 billion from RM1.17 billion in 4Q19.

The weaker earnings were mainly due to higher allowance for impairment losses on loans and other assets. It proposed a final single-tier dividend of 20 sen per share for FY20.

Notably, none of the banks except for HLB declared a dividend that quarter. HLB recommended a final dividend per share of 20 sen for the quarter, bringing total dividend per share (DPS) for the full year to 36 sen, which works out to a conservative payout ratio of 30%. Its DPS was 50 sen in the previous year. The company’s stock trades at 12 times its estimated EPS for the coming year.

Based on Bloomberg Dividend Forecasts for the next 12 months, the company’s dividend yield is 3.7% and 3.4% on a trailing 12-month basis.

AmInvestment Bank analyst Kelvin Ong and Maybank Kim Eng analyst Desmond upgraded the recommendation on HLB to ‘Buy’ and assigned a target price (TP) of RM17. TA Securities Holdings Bhd analyst Li Hsia Wong downgraded the recommendation to ‘Sell’ and assigned a TP of RM15 last Wednesday.

Press Metal Aluminium Holdings Bhd

Press Metal’s stock price has risen as much as 219% since the 2Q of this year despite analysts expecting a very weak 2Q on the back of low aluminium prices.

It’s share price was at RM3.06 a piece in early April and at RM5.21 last Friday, causing its market cap to grow by 70% to RM21 billion.

Press Metal trades at 52 times its estimated EPS for the coming year while the company’s dividend yield is 0.9% on a trailing 12-month basis.

Last month, AmInvestment Bank Research raised its net profit forecasts on the company in tandem with the increase in aluminium prices.

The research house, which has a ‘Hold’ rating on the counter, increased its fair value on the stock to RM4.25 from RM3.94 previously based on a revised FY22 forecast EPS.

“While the 18 times multiple is in line with our target P/E for the FBM KLCI, it is at a substantial premium to the 10 times average forward P/E of key global aluminium smelters.

“This is to reflect Press Metal’s favourable cost structure with the bulk of its energy costs (from hydro power) locked in at very competitive rates over the long term,” it said.

For 1H20, Press Metal’s core net profit of RM197.3 million was 47% and 51% of AmInvestment and consensus full-year estimates respectively.

The research house considers the results above expectations in anticipation of stronger earnings in 2H due to recovering aluminium prices.