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8 Malaysia Small/Mid Caps For A Defensive Portfolio
Following the seven large-cap stocks that CIMB Research recommends, we highlight eight more small/mid-cap Malaysian stocks that CIMB Research is optimistic about.
1. Bonia
Bonia was recently upgraded by CIMB Research following the closure of its non-profitable licensed brands boutiques.
According to CIMB Research, better cost controls and shaving off loss-making boutiques will help Bonia improve its margins and earnings.
Moreover, the full-year profit contribution from its Braun Buffel (BB) Indonesia stores will start to be included in its earnings from FY18F.
CIMB Research: Bonia Corporation Berhad (KLSE: BONIA) – BUY; Target Price RM0.82
2. LBS Bina Group
Having turned its focus to the mass-market residential market, LBS Bina has been growing its new property sales by at least 20% in the past two years.
LBS Bina plans to boost sales by 23% this year through the launch of more affordable township projects.
LBS Bina’s sales results will be a key catalyst for its share price in the upcoming months.
CIMB Research: LBS Bina Group Berhad (KLSE: LBS) – BUY; Target Price RM2.55
3. DRB-Hicom
DRB-Hicom is a key beneficiary of the proposed joint venture of Proton and Geely.
CIMB Research believes that Geely will drive Proton’s earnings recovery from its platform sharing, technology transfer amongst a slew of initiatives.
Another area that DRB-Hicom is expected to benefit from is a consolidation of its logistics assets under Pos Malaysia, enabling DRB-Hicom to ride on the growing e-Commerce activities.
CIMB Research: DRB-Hicom Berhad (KLSE: DRBHCOM) – BUY; Target Price RM2.35
4. EITA Resources
EITA Resources is the leading supplier of electrical contractors, switchboard fabricators, system integrator and Original Equipment Manufacturer of elevator systems in Southeast Asia.
With the MRT phase 2 elevator jobs up for grabs, securing a package from the job will catalyse the share price of EITA Resources.
The winner of the job should be announced in the next three to six months. In addition, CIMB Research expects tenders for LRT elevator jobs to be out soon.
CIMB Research highlights that the company stands a good chance of securing both the MRT2 and LRT3 elevator jobs as it is the only major domestic player in this market segment.
CIMB Research: EITA Resources Berhad (KLSE: EITA) – BUY; Target Price RM2.40
5. Unisem
Unisem recently appointed a new management team and carried out a restructuring exercise on its Batam operations.
After the new management team took over, Unisem took a strategic shift to an advanced packaging portfolio.
Moreover, backed by a resilient industry demand outlook, CIMB Research expects Unisem to record stronger earnings in 2H17F.
CIMB Research: Unisem Berhad (KLSE: UNISEM) – BUY; Target Price RM5.00
6. Kossan Rubber
CIMB Research sees Kossan Rubber Industries as a leader in the glove industry for its strong earnings momentum.
Kossan Rubber has been planning to increase its production capacity by 34% by end-2018 – adding 7.5 billion annual capacity in phases by 1H18, with the first 3 billion by end-3Q17.
CIMB Research thinks Kossan Rubber continues to be undervalued despite its stronger earnings momentum.
Its peers are currently valued at 18.2x CY18 PE (Top Glove) and 28x CY18 PE (Hartalega) while Kossan Rubber is only valued at 17x CY18 PE.
CIMB Research: Kossan Rubber Industries Berhad (KLSE: KOSSAN) – BUY; Target Price RM07.55
7. Inari Amertron
Inari Amertron is one of the open-source appropriate technology (OSAT) provider to multinational and local electronics product manufacturers.
Given the robust RF semiconductor demand and higher volume loading in its other arms, Inari-Amerton’s management has guided for a 15% annual revenue growth guidance in FY18-19.
In addition, Inari Amerton’s growth prospects continue to be driven by its strategy of diversifying earnings beyond RF. Inari Amerton remains as CIMB Research’s favourite in the Malaysian semiconductor space.
CIMB Research: Inari Amertron Berhad (KLSE: INARI) – BUY; Target Price RM2.75
8. Muhibbah Engineering
CIMB Research believes that Muhibbah Engineering is attractive both from a business and valuation perspective.
Having attained robust Cambodian airport concessions and higher infra margins arising from a substantial overseas variation order (VO) claims, Muhibbah Engineering could potentially report stronger earnings in 2H17.
That has convinced CIMB Research to recommend Muhibbah Engineering as the top small/mid-cap pick for growth in domestic marine/port infra contracts.
At an attractive CY17-18 P/E of 9-10x, Muhibbah Engineering is priced at a 30-40% to the sector average PE of 15x.
CIMB Research: Muhibbah Engineering M Berhad (KLSE: MUHIBAH) – BUY; Target Price RM3.36
