Hong Leong Bank, Tenaga Nasional, Gamuda Berhad, Sime Darby, Telekom Malaysia – Key Malaysian Investment Opportunities
Hong Leong Bank (HLBK) (Bursa Malaysia: 5819): Strong Asset Quality and Loan Growth
Recommendation: ADD
- Target Price: RM30.00
- Date of Recommendation: September 2, 2024
- Broker Company: CGS-CIMB Securities
Investment Thesis:
Hong Leong Bank (HLBK) commands one of the best asset qualities in the Malaysian banking sector, with a focus on delivering consistent loan growth and improving net interest margins (NIM). The bank’s strategic initiatives aim to lift its return on equity (ROE) from 11.8% in FY6/23 to above 12.5% in FY6/26F, positioning it for steady financial performance.
Key drivers include:
- Asset Quality: HLBK has maintained excellent asset quality, with lower-than-industry-average non-performing loans (NPLs) and a strong capital base. This resilience has enabled the bank to navigate economic uncertainties effectively.
- Loan Growth and NIM: The bank is expected to deliver robust loan growth and improvement in NIM, driven by strategic cost management and product innovation.
- ROE Target: HLBK’s management has set an ambitious target to increase its ROE to above 12.5% by FY6/26F, which is higher than the current projections. This reflects the bank’s commitment to enhancing shareholder value.
Valuation and Catalysts:
The target price of RM30.00 reflects HLBK’s strong asset quality, loan growth, and potential for margin expansion. The bank’s focus on improving ROE and maintaining a stable dividend policy makes it an attractive investment in the Malaysian financial sector.
Tenaga Nasional (TNB) (Bursa Malaysia: 5347): Central Beneficiary of Energy Transition
Recommendation: ADD
- Target Price: RM15.60
- Date of Recommendation: September 2, 2024
- Broker Company: CGS-CIMB Securities
Investment Thesis:
Tenaga Nasional (TNB) is a critical enabler of Malaysia’s energy transition, benefiting from its central role in the National Energy Transition Roadmap (NETR). As the largest electricity utility in Malaysia, TNB is well-positioned to capitalize on the growing demand for renewable energy and the ongoing modernization of the national grid.
Key drivers include:
- Energy Transition: TNB is at the forefront of Malaysia’s energy transition, with significant investments in grid upgrades and renewable energy projects. This positions the company as a key player in the country’s move towards a more sustainable energy future.
- Regulated Returns: The company’s recurring regulated returns from grid upgrade capex provide a stable and predictable revenue stream, supporting its long-term financial health.
- Data Centre Theme: TNB is also an indirect play on the data centre theme, with its reliable power supply being a critical enabler for the growing data centre industry in Malaysia.
Valuation and Catalysts:
The target price of RM15.60 is supported by TNB’s strategic role in Malaysia’s energy transition and its stable regulated returns. The stock has performed well over the past year, but the market has yet to fully factor in the upside from TNB’s ongoing investments in grid modernization and renewable energy.
Gamuda Berhad (Bursa Malaysia: 5398): Attractive Valuation with Strong Earnings Growth
Recommendation: ADD
- Target Price: RM9.50
- Date of Recommendation: September 2, 2024
- Broker Company: CGS-CIMB Securities
Investment Thesis:
Gamuda Berhad remains an attractive investment in Malaysia’s construction sector, with a strong earnings growth outlook supported by a robust order book and strategic project wins. The company’s ability to secure large-scale infrastructure projects positions it for sustained growth in the coming years.
Key drivers include:
- Earnings Growth: Gamuda is expected to achieve a three-year earnings per share (EPS) compound annual growth rate (CAGR) of 16%, driven by its expanding order book and efficient project execution.
- Order Book: The company’s year-to-date wins amount to RM9 billion, and with an expected quarterly burn of RM2.5 billion in construction revenue, Gamuda is likely to exceed its RM25 billion target by 20%, reaching an order book of RM34 billion by FY25F.
- Valuation: Trading at 16.5x CY25F P/E, Gamuda offers a compelling investment opportunity with significant upside potential.
Valuation and Catalysts:
The target price of RM9.50 is based on Gamuda’s strong earnings growth outlook and its ability to secure and execute large-scale infrastructure projects. The stock’s attractive valuation and robust order book make it a top pick in the Malaysian construction sector.
Sime Darby (Bursa Malaysia: 4197): A Laggard Play with Potential Upside
Recommendation: ADD
- Target Price: RM3.28
- Date of Recommendation: September 2, 2024
- Broker Company: CGS-CIMB Securities
Investment Thesis:
Sime Darby, a diversified conglomerate with interests in the automotive, industrial, and healthcare sectors, is positioned as a laggard play with potential upside from local currency appreciation. The company’s focus on private consumption and its attractive valuation make it a compelling investment opportunity.
Key drivers include:
- Private Consumption: Sime Darby is well-positioned to benefit from buoyant private consumption trends in Malaysia, particularly in the automotive and healthcare sectors.
- Currency Appreciation: The company is a potential beneficiary of ringgit appreciation, which could provide a boost to its earnings, especially in the automotive division.
- Valuation: Trading at just 10.2x 2025F P/E and offering a 5.2% yield, Sime Darby is attractively valued compared to its peers, providing a strong case for upside potential.
Valuation and Catalysts:
The target price of RM3.28 reflects Sime Darby’s potential to capitalize on favorable consumption trends and currency appreciation. The company’s diversified business model and attractive valuation offer a solid investment case for long-term growth.
Telekom Malaysia (TM) (Bursa Malaysia: 4863): Benefiting from Rising Data Consumption
Recommendation: ADD
- Target Price: RM8.56
- Date of Recommendation: September 2, 2024
- Broker Company: CGS-CIMB Securities
Investment Thesis:
Telekom Malaysia (TM) is set to benefit from the rising demand for data consumption across retail, enterprise, and wholesale segments. The company’s extensive fibre network, coupled with healthy cash flows, positions it for continued growth and higher dividend yields.
Key drivers include:
- Fibre Network Expansion: TM’s investments in expanding its fibre network are expected to drive growth in data consumption, providing a steady revenue stream across multiple segments.
- Healthy Cash Flows: The company’s strong cash flow generation supports higher dividend payouts, making it an attractive investment for income-focused investors.
- Attractive Valuation: With a 17% ROE and trading at 13.8x FY25F P/E, TM is well-positioned compared to its peers, offering a strong investment case.
Valuation and Catalysts:
The target price of RM8.56 is supported by TM’s strategic investments in network expansion and its potential to capture growing demand for data services. The company’s strong financial position and attractive valuation make it a top pick in the Malaysian telecommunications sector.
Thank you
