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Thursday, March 14, 2013

CIMB highlights the smaller counters, with MyEG its top pick


PETALING JAYA: A handful of small cap stocks like My E.G. Services BhdCypark Resources Bhd and Daibochi Plastic and Packaging Industry Bhd, are highlighted in a report by CIMB Research for reasons ranging from their defensive nature to decent dividend yields and the fact that they are considered “cheap”.
It said the FBM Small Cap Index (SCI) had outperformed the FBM KL Composite Index (KLCI) year-to-date, a sign that the sector had discounted the most of the political risks last year.
“Our small-cap universe is trading at 7.7 times calendar year 2013 price-to-earnings (P/E), or a 48% discount to KLCI's 14.9 times. The sector usually trades at 25% to 45% discounts to the KLCI,” it added.
My E.G. Services Bhd (MyEG) emerged as CIMB Research's top pick among small caps and in the technology sector due to its defensive and recurring-income business but had underperformed SCI.
“Its recent underperformance was mainly related to general elections concerns, we feel.
“Whether or not the ruling coalition stays in power, we believe MyEG's concessions are here to stay,” said CIMB Research, adding that MyEG's capital expenditure was fully-funded by the company.
The research firm valued MyEG's target price at RM1.34 as it expected the counter to outperform the benchmark broad market.
As the only pure renewable-energy listed company in Asean and a proxy for Malaysia's mission of lowering carbon emissions by 40% from 2005 to 2020, Cypark was also an “outperform” while it also offered attractive dividend yields, according to CIMB Research.
The research house pointed out that catalysts for the counter were higher renewable-energy electricity sales and the signing of its 25-year waste-management concession in Negeri Sembilan.
CIMB Research's target price for Cypark was RM2.82 based on sum-of-parts valuation.
The research house liked Daibochi due to its 25% improved capacity by end-2013 following its expansion plans.
“Higher-than-expected exports and potentially strong sales of its new 2-layer films could catalyse the stock,” the research firm noted. Its target price is RM2.90.
Meanwhile, the research unit was bullish on HELP International's long-term outlook, with the opening of a new international school and new university campus and backed by its strong asset base.
The education group's target price of RM2.52 was unchanged at a 10% discount to “our revised net asset value,” according to CIMB Research.
For oil and gas small caps, Perisai was its top pick, with 2014 market target of 13.3 times P/E or target price of RM1.63.
The firm also said Tomypak was cheap against peers with attractive dividend yields of 6% to 7% and estimated a target price of RM2.90, which was 7.4 times 2014 P/E.
The research house anticipated China stocks on the local bourse to catch up with Chinese equity markets after the general election as Chinese equities market had rallied strongly.
“This should benefit Xingquan, which continues to trade below its RM1.13 net cash per share,” it said.

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