This article first appeared in Capital, The Edge Malaysia Weekly on January 13, 2025 - January 19, 2025

WHILE it’s hard to say if the worst is over for a number of beaten-down blue chips, market experts believe it is a matter of time before things look up on the back of strong investment flows.

In fact, some fund managers and analysts are of the view that some of the stocks’ undemanding valuations and steep discounts present attractive opportunities, especially in the longer term.

“In general and for long-term investors, it is better to look at big caps [anyway], as you can reasonably expect their fundamentals to remain intact. Their value is now affected partly due to foreign outflows [which is not cause for worry].

“WRT foreign holdings on Bursa Malaysia again fell below 20%, a low level. Once it recovers, [good large-cap counters] may be of interest,” Areca Capital Sdn Bhd CEO Danny Wong tells The Edge.

The WRT licence is a mandatory permit issued by the Ministry of Domestic Trade and Consumer Affairs in Malaysia. It is required for all foreign-owned companies involved in wholesale and retail trade activities within the country.

Despite the FBM KLCI ending 2024 on a high, thanks to a last minute burst that led the benchmark index to close 3% higher at 1,642.23 on Dec 31, the going has been rough for more than two dozen large- and super-large-cap companies listed on Bursa.

Industry heavyweights such as Genting Bhd (KL:GENTING), Genting Malaysia Bhd (KL:GENM), PPB Group Bhd (KL:PPB), Press Metal Aluminium Holdings Bhd ­(KL:PMETAL) and DXN Holdings Bhd (KL:DXN) have faced significant headwinds and struggled to deliver positive returns to shareholders.

Nevertheless, market experts are hoping that local investment themes and foreign direct investment (FDI) inflows will benefit these counters.

“Despite broad-based selling pressure, we expect the Johor-Singapore Special Economic Zone (JS-SEZ) theme to continue providing support to overall investment sentiment in the near term, driven by ongoing FDI inflows and data centre investments. Besides, we remain optimistic about Penang-related counters, underpinned by the commencement of six water projects worth over RM1.8 billion and the start of the Penang Light Rail Transit (LRT) project,” says Malacca Securities Sdn Bhd head of research Loui Low, who is maintaining a bullish outlook on the construction, property, building material and utilities sectors.

Low likes selected oil and gas, finance and renewable energy stocks, as “the latter will be riding on the National Energy Transition Roadmap (NETR) blueprint and electric tariff hike by Tenaga Nasional Bhd (KL:TENAGA) recently”.

Peninsular Malaysia’s new base electricity tariff has been set at 45.62 sen per kilowatt hour (kWh) in the three-year regulatory period (RP) of 2025-2027, marking a 14.2% increase from 39.95 sen/kWh set in RP3 (2022-2024).

The FBM KLCI closed at 1,614.83 points last Wednesday, 1.67% lower than 12 months ago. It hit a peak of 1,678.80 points in August. Local plays on the market during the year included data centre hype and infrastructure rollouts as well as anticipation of interest rate cuts by the US Federal Reserve.

After entering 2024 on a high, the FBM KLCI reversed towards the year end. It closed 0.92% lower year to date at 1,614.83 points last Wednesday as negative overnight performance in the US dampened sentiment across the regional markets. All sectors ended on a negative note, with the healthcare index declining the most at 2.77%.

Companies such as Press Metal Aluminium Holdings and Petronas Chemicals Group Bhd (KL:PCHEM) were affecte by declining commodity prices due to weakened global demand amid geopolitical tensions, while telecommunications giants Maxis Bhd ­(KL:MAXIS) and CelcomDigi Bhd (KL:CDB) had to contend with competitive pricing strategies and regulatory hurdles, which dampened profitability.

Although Press Metal and Petronas Chemicals have fallen 3.29% to RM4.71 and 32.96% to RM4.76 respectively during the last 12 months, analysts covering the counters are confident of a 25.05% and 3.77% upside in these counters.

In fact, RHB Research in a Dec 2 report raised its target price for Press Metal to RM6.39 from RM6.30, suggesting a 38% upside from last Thursday’s closing of RM4.68, with about a 2% FY2025 forecast yield.

“Press Metal’s 9MFY2024 core earnings of RM1.4 billion exceeded the street’s and our expectations, driven primarily by stronger contributions from its associates,” says RHB Research. It also pointed out that alumina prices remained elevated at US$508.50/tonne (+18% quarter on quarter) in 3Q2024, driven by tight supply, while carbon anode prices remained stable below RMB4,000/tonne.

“Alumina prices are expected to peak by early 2025 as new capacities come online in 2025, primarily in Indonesia and India. The all-time high level of alumina prices have been softening the profit margins of aluminium smelters in the near term,” says Tradeview Capital chief investment officer Nixon Wong. Other factors, he adds, include earnings recovery on account of stable aluminium prices due to easing monetary policies by major central banks and gradual economic recovery in China, as well as the easing of alumina prices in 2025.

As to whether diversified conglomerate PPB Group, which slipped 14.7% in the past year to the RM12.42 level last Thursday, has hit rock bottom, Nixon believes upstream earnings should increase on firm palm oil and sugar prices over the coming quarters.

“Longer-term demand for food products should continue inching up on the growing middle class in China, India and Southeast Asia. Likewise, profits for feed and industrial products should pick up on improving demand. Its cinema business should also improve on improving consumer spending and more blockbuster releases,” says Nixon.

Inflationary pressures have caused operating costs to go up across sectors, from manufacturing to consumer goods. For beaten-down Nestle Malaysia Bhd (KL:NESTLE), sticky sentiments arising from the rising tensions in the Middle East have not been helpful. Managing expectations, analysts project a small upside of 4.44% to the RM99.22 level.

The situation at Lotte Chemical Titan Holding Bhd has been rough, with the loss-making olefin and polyolefin producer announcing the temporary shuttering of one of its plants at the Pasir Gudang Complex in Johor, from Dec 15, to mitigate losses stemming from a prolonged downturn in the petrochemical industry. It plans to resume only when market conditions “become more favourable”.

The stock fell 2.3% to 63 sen on Dec 15, its lowest since the company was relisted on the stock exchange in July 2017. The counter has shed 61.26% in the last 12 months to 58.5 sen last Thursday, giving the company a market value of RM1.33 billion.

However, while analysts believe Lotte Chemical Titan will continue to bleed over the next few quarters, it may be an opportunity for deep-pocketed investors to scoop up the beaten-down stock at a steep discount. Bloomberg data shows that analysts covering the counter believe the company is worth RM1.01 — a generous 68% upside from its present share price.

Analysts also think there is hope for DXN, one of the worst-performing large-cap stocks of 2024, having fallen 24% from the 70 sen level in January to 52 sen on the last trading day of the year. The counter is currently valued at RM2.64 billion.

DXN, which relisted on Bursa Malaysia in May 2023, announced weaker-than-expected earnings for the second quarter ended Aug 31, 2024 (2QFY2025) of RM65.97 million, down 13.2% y-o-y and 23% q-o-q, due to a combination of forex losses, and higher employee benefit costs and shipping fees eating into its net profit.

While its 6MFY2025 net profit fell 1.35% to RM151.53 million from RM153.61 million a year ago, the company recorded a 13% y-o-y growth in its full-year net profit in FY2024 to RM310.99 million.

Despite investors remaining unconvinced about the company’s potential, all four research houses covering DXN have a “buy” call on the stock, with a target price of 87 sen.

For Dialog Group Bhd (KL:DIALOG), Tradeview Capital’s Nixon believes that catalysts could include earnings growth delivery and Pengerang’s new tank terminal contracts.

“[The integrated technical service provider] stands out via its strong operational/financial stability from its long-term midstream tank terminal assets. It has secured a renewal for its master service agreement (three plus two years) from Petroliam Nasional Bhd [for its plant maintenance segment] beginning from the second half of 2024 at significantly higher rates. Also, with the gradual phase-out of loss-making legacy engineering, procurement, construction and commissioning (EPCC) contracts by June 2024, the [EPCC] segment is likely to be profitable beginning FY2025 as newer jobs are also signed at improved rates,” Nixon explains.

Meanwhile, analysts on Bloomberg collectively had consensus target prices of RM5.13 for Genting Bhd, RM2.93 for Genting Malaysia and RM4.30 for IOI Corp, indicating upsides of 37.5%, 33.18% and 11.40% respectively for the counters.

“[The tourism recovery still has legs] but investors don’t seem to appreciate the [Genting] counters for now even with the steep discount, owing to sentiments related to corporate governance,” says an analyst who declines to be named.

For the first two quarters, Tradeview’s Nixon recommends that investors maintain a healthy level of cash of about 15% to 20% so as to be able to capture buying opportunities as they arise.

“Keep a highly diversified portfolio with several names for healthy growth prospects or defensive qualities.

“Watch for changes in interest rates, oil prices and government policies, which could significantly impact some of these counters. The immediate one would be the global trade policies post inauguration of US president-elect Donald Trump, [who will be sworn in on Jan 20],” he adds.

Meanwhile, Phillip Capital in a Dec 24 report noted that stocks with a market cap below RM5 billion offer “a better risk-reward, bolstered by strong thematic growth drivers” in 2025.

“We remain confident in the prospects for small- and mid-cap stocks” as current valuations present a timely opportunity to accumulate high-quality stocks that would benefit from improving market sentiment and positive news flows, the research house says.

For strategy, Phillip Capital is “overweight” all sectors except for property, which it rates as “neutral” due to subdued underlying demand.

Its top picks include oil-and-gas services firm Dayang Enterprise Holdings Bhd ­(KL:DAYANG), whose target price implies an upside of 126%, followed by telecommunications services company OCK Group Bhd (KL:OCK), which offers an 83% potential gain from its current level.

Other high conviction buy picks are BM Greentech Bhd (KL:BMGREEN), a biomass boiler manufacturer, and mechanical and electrical engineering firm Critical Holdings Bhd (KL:CHB).

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