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3 MY Value-Growth Plays

According to CIMB’s analysis, weak 2Q18 results season in Malaysia has led to the emergence of value-growth plays.

Investors Takeaway: 3 Value-Growth Plays In Malaysia

  1. Oceancash Pacific

Its strong growth prospects (3-year earnings per share compounded annual growth rate of 13.5 percent), defensive nature of the business, and growing demand for its hygiene and felt products (especially in emerging countries) are three reasons why CIMB highlighted Oceancash Pacific (Oceancash) as one of its value-growth plays.

Despite an uninspiring 1H18, CIMB is expecting Oceancash to bounce back with stronger results in 2H18. CIMB is anticipating an increase in production volume in both its segments. The recent weakening of the ringgit further fuels CIMB’s confidence that Oceancash can fare better in 2H18 as 60 percent of Oceancash revenue is export-orientated in US dollars.

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According to CIMB, Oceancash has the right growth plans in place for both its insulation (felt) and hygiene segments. For its insulation segment, Oceancash plans to lower its selling prices by shifting more of its production to cheaper non-resinated felts in Indonesia This will help to fill up the excess capacity of its underutilised facility (33 percent utilisation rate) in Indonesia. For its hygiene segment, Oceancash plans to set up a warehouse facility in Thailand to cater for many large-scale diaper factories that are located there.

BUY, TP RM0.76; Current share price RM0.53

  1. RHB Bank

CIMB highlights RHB Bank as a growth stock with undemanding valuation. It is the top pick for the banking sector supported by its attractive valuation and expected benefits from its ongoing transformation programme.

RHB is current trading at an undemanding valuation of 8.7 times FY19 price-to-earnings (P/E) and 0.8 price-to-book value. CIMB also notes that RHB’s transformation programme has started to bear fruit. The programme has been helping RHB improve its operating efficiency and grow its low-cost deposits. CIMB foresees this programme to help drive its fee income generation in the longer term. A strong financial performance in the upcoming quarter could act as a re-rating catalyst for RHB, according to CIMB.

BUY, TP RM6.23; Current share price RM5.43

  1. Lee Swee Kiat

Lee Swee Kiat is Malaysia’s largest natural bedding producer. It is another undervalued growth stock that CIMB likes.

Lee Swee Kiat is currently priced at an attractive valuation that is at a discount to the consumer sector (i.e. FY19 P/E of 13 times vs sector P/E of 29.7 times). Despite its undemanding valuation, Lee Swee Kiat is showing strong earnings growth prospects. Its FY18-20F earnings is expected to grow at a CAGR of 33.5 percent. This will be driven by a multitude of factors, including 50 percent growth in its semi-foam latex production capacity by end-2Q18, higher finished mattress sales and low natural latex prices.

CIMB also opines that Lee Swee Kiat’s strong net cash position of RM8.2 million could allow it to make earnings accretive acquisitions. Its proposed acquisition of 5 Mattress Factory Outlets (MFO) and the “MFO” trademark will continue to help it grow its finished mattress business and be earnings accretive in the medium term.

BUY, TP RM1.28; Current share price RM1.00

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