Overview

The latest Strategy Note from CGS International provides an extensive analysis of Malaysian companies, highlighting key performance metrics, sector-wise developments, and strategic recommendations. This report offers valuable insights into the financial landscape, assisting investors in making informed decisions.

Highlighted Companies and Their Analysis

Hong Leong Bank

Hong Leong Bank is recognized for its superior asset quality within the banking sector. The report projects improved loan growth and Net Interest Margin (NIM) from FY24 to FY25. Hong Leong Bank aims to enhance its Return on Equity (ROE) from 11.8% in FY6/23 to over 12.5% by FY6/26. The stock carries an “ADD” recommendation with a target price of RM30.00 against its closing price of RM20.80.

Tenaga Nasional

Tenaga Nasional, a pivotal player in the Net Energy Transition Roadmap, is positioned to benefit from regulated returns on energy transition-related grid upgrades. Despite strong performance over the past year, CGS International believes the market has not fully accounted for potential upsides. The stock is recommended as “ADD” with a target price of RM19.10, compared to its closing price of RM13.98.

Gamuda Berhad

Gamuda Berhad, with a forward CY25F P/E of 19.4x, is supported by a two-year EPS CAGR of 21%. Year-to-date wins total RM9bn, and the order book is expected to expand to RM30bn-35bn by the end of CY24F. The company is projected to recover margins with more domestic wins, carrying an “ADD” recommendation and a target price of RM10.00, above its closing price of RM9.02.

Sime Darby

Sime Darby is identified as a laggard play on robust private consumption and local currency appreciation. Trading at 8.5x 2025F P/E, it offers a 5.8% yield. The recommendation is “ADD,” with a target price of RM3.60, while the current closing price stands at RM2.32.

Telekom Malaysia

Telekom Malaysia’s expansive fiber network is poised to capitalize on increasing data consumption across retail, enterprise, and wholesale levels. The stock’s healthy cash flows support higher dividend yields, currently c.4%. With a 17% ROE and 13.1x FY25F P/E, it is deemed attractive against peers. The recommendation is “ADD,” with a target price of RM8.60, above its closing price of RM6.46.

Market Insights and Performance Trends

The report highlights that the KLCI and FBM100 indexes experienced significant growth in the first eight months of 2024, but the rally diminished in the following months. Despite favorable factors like the Madani reform agenda and expected ringgit appreciation, share prices have not fully reflected the improved earnings trajectory.

The recommendation framework for the stocks in this report includes “ADD,” “HOLD,” and “REDUCE,” based on expected total returns over the next 12 months. Sector ratings are classified as “Overweight,” “Neutral,” or “Underweight,” depending on market cap-weighted recommendations.

The CGS International report sees room for substantial P/E expansion going into 2025, presenting recent share price corrections as excellent buying opportunities. Their top picks, trading at 12.8x 2025F P/E, offer an 18% two-year profit CAGR and a 4.1% yield.

Conclusion

The Strategy Note by CGS International provides a detailed examination of Malaysian companies, offering valuable insights and recommendations based on current market trends and financial forecasts. Investors are encouraged to consider these analyses and recommendations in their investment strategies.