Finding Diamonds In The Rough: Our Best Investment Ideas
Regional Thematic Report See important disclosures at the end of this report 1 Powered by the EFA Platform 11 June 2018 Finding Diamonds In The Rough “Rough diamonds may sometimes be mistaken for worthless pebbles” Thomas Browne Our Best Investment Ideas We have always actively sought out “Diamonds In The Rough” among the companies under coverage in our ASEAN + Hong Kong footprint. We used a bottom-up fundamental analysis and screened for companies that met four criteria: 1. ROEs of 15% or above; 2. Increasing margins; 3. Trading below the average market multiples; 4. Reasonable corporate governance. The table below shows our 16 “diamonds”. Some See Coal, We See Diamonds Source: RHB Our four criteria used to discover the diamonds: 1. ROEs of 15% or above; 2. Increasing margins; 3. Trading below sector valuations; 4. Reasonable corporate governance. Table of Contents Our Diamonds from: Malaysia 2 Thailand 7 Hong Kong/China 9 Singapore 12 Indonesia 16 Our methodology uses a fundamental bottom-up analysis, coupled with RHB’s on-the-ground insights. Our sector analysts provided their assessments of the average market multiples for the respective sectors that the companies operated in. As one of the criteria is “trading below the average market multiples”, it means these stocks are out of favour currently. In parallel, the list was further refined based on our assessments of each company’s potential to widen its margins, without compromising on the ROE while having reasonable corporate governance. Previous strong absolute returns. In our former three “Diamonds In The Rough” reports – from 2016, 2017, and at the beginning of 2018 – our search resulted in a list of stocks that exhibited strong absolute returns: Finding Diamonds In The Rough RHB Thematic - Uniquely RHB - Some See Coal, We See Diamonds Regional Diamonds the 3rd: Our Best Investment Ideas Our findings this time have resulted in a list of 16 stocks shown below. This list represents companies that our analysts believe can have robust earnings growth due to the sector- or company-specific reasons. In the table below, we show these companies in alphabetical order. We have BUY recommendations on all these counters, and our level of conviction is shown in their potential upside returns. As it takes a while for coal to turn into diamonds, we consider that – given time – all the companies in the list below should show healthy absolute returns. The pages that follow show a brief description of why we consider these companies picked have “diamond”-type characteristics, presented per each country in our coverage universe. Source: Company data, RHB (Data as of 4 Jun 2018) P/E (x)P/B (x)Yield (%)Dec-18FDec-18FDec-18FAPAC Realty BUYSGD0.90SGD1.3550.7 10.7 2.2 5.6 Astra International BUYIDR6,975IDR8,45021.1 14.5 2.1 3.7 Bermaz Auto BUYMYR2.22MYR2.5514.9 13.9 5.2 5.4 China State Construction BUYHKD9.66HKD13.2036.6 7.2 1.0 3.9 Chinasof t International BUYHKD6.68HKD7.7716.3 18.5 2.2 - Cocoaland BUYMYR2.34MYR3.0229.1 13.9 2.0 4.3 Dialog BUYMYR3.38MYR3.9216.1 44.2 6.3 - GSS Energy BUYSGD0.15SGD0.2568.9 10.6 1.5 1.9 Gudang Garam BUYIDR70,075IDR91,10030.0 16.0 2.9 3.7 Japan Foods Holding BUYSGD0.51SGD0.6323.8 14.0 2.4 4.1 Major Cineplex BUYTHB27.25THB31.0013.8 27.0 3.8 4.0 Serba Dinamik BUYMYR3.30MYR4.0723.3 11.4 3.5 2.6 Shimao Property BUYHKD25.10HKD30.0019.5 6.8 1.0 5.9 Singapore Exchange BUYSGD7.26SGD9.0024.0 19.9 7.1 4.5 SKP Resources BUYMYR1.60MYR2.0427.7 13.3 3.2 3.8 TISCO Financial BUYTHB86.25THB104.0020.6 9.7 1.8 6.2 Com pany Nam ePriceTarget% Upside (Dow nside) RatingCountry heads (in alphabetical order): Alexander Chia +603 9280 8889 alexander.chia@rhbgroup.com Kasamapon Hamnilrat +662 862 9999 kasamapon.ha@rhbgroup.com Toni Ho, CFA +852 2103 5888 toni.ho@rhbgroup.com Shekhar Jaiswal +65 6232 3894 shekhar.jaiswal@rhbgroup.com Andrey Wijaya +6221 2970 7058 andrey.wijaya@rhbgroup.com
