Five hot stocks ahead of elections

FGV is top of the list of favoured stocks that would benefit from the run up to the general election

LAST year, politics dominated the capital markets in the US and Europe. This year, politics is likely to be one of the major themes for Bursa Malaysia. This is on the grounds of growing expectations that the general election could be held before the due date of mid-2018.

Companies perceived to have strong political affiliations such as Felda Global Ventures Holdings Bhd (FGV), Media Prima Bhd, Utusan Melayu (M) Bhd, KUB Malaysia Bhd and Destini Bhd may come into play in the run up to the elections. Except for Destini, which is majority owned by Datuk Rozabil Abdul Rahman, the other companies are in someway or other linked to politics.

In the past, companies that were owned by individuals and land lucrative construction contracts used to be “tagged” as politically linked.

Among them were the likes such as Renong Bhd, Malaysian Resources Corp Bhd and United Engineers (M) Bhd. However, government-linked funds such as Khazanah Nasional and government-linked investment funds have taken over these companies in the aftermath of the 1998 financial crisis. For instance, the Employees Provident Fund (EPF) is the major shareholder of MRCB, which is managed by Tan Sri Mohamed Salim Fateh Din, who is the second largest shareholder.

In 2005, the government announced a massive programme to rejuvenate the government-linked companies and it was headed by Khazanah. Since then, the number of beneficiaries from general election, deemed as “election stocks” has diminished.

“Since 2004 general election, there are very few stocks that can be seen as potential beneficiaries ahead of the general election,” says an analyst.

Analysts, however, believes that based on historical trends, there are trading opportunities in a pre-general election rally.

“The relationship between politics and the stock market is a bit complex but positively reinforcing,” an analyst says.

Below we look at five stocks that are seen as beneficiaries in the run up to the general election because of the political undertones linked to the counters.

Felda Global Ventures Bhd

The world’s largest crude palm oil producer, Felda Global Ventures Holdings Bhd (FGV), has always been perceived as an important political cog to the government.

The reason being FGV is synonymous with settlers in the rural areas which are the stronghold of Umno and Barisan Nasional.

It has been reported that as many as 54 parliamentary constituencies are dominated by Felda settlers and are strongholds of Barisan Nasional, thus making FGV an important company to the government.

In May 2012, the Prime Minister announced that 112,635 settler families would be getting a windfall of RM1.689bil, or RM15,000 for each family.

FGV is facing problem with its matured lands and aging palm trees that see the company’s profits drop and the fact that the share price has yet to regain any of its listing lustre.

FGV’s initial public offering (IPO) in 2012 was the second largest in the world after Facebook and was timed just before the 13th general election in May 2013. Since its listing, FGV shares have fallen more than 60% to RM1.68 from its IPO reference price of RM4.55.

And most recently, the EPF has ceased to be a shareholder of FGV. There were also some issues with the company’s corporate governance practices.

Nonetheless, the group’s new chief executive officer Datuk Zakaria Arshad had said that the worst days for its palm oil business were over, and that the group was looking to lower its cost.

Zakaria said the group’s strategy would revolve around three main thrusts – business rationalisation to make the organisation leaner, drive for operational excellence and selective external growth – all to be executed under uncompromising governance and transparency standards.

In 2015, FGV proposed to acquire a block in Eagle High Plantations from Indonesia’s Rajawali Group. However, when Zakaria took over the helm of FGV, he stated clearly that FGV would not proceed with the deal.

In the latest development, Tan Sri Shahrir Samad, a seasoned politician, has been appointed as chairman of the Federal Land Development Authority (Felda), which is the major shareholder of FGV. He replaces Tan Sri Isa Samad, who remains chairman of FGV.

Utusan Melayu (M) Bhd

Currently, political parties and politicians hold few direct stakes in Utusan Melayu, which is 49.77% owned by Umno.

Historically, the Umno directly-owned newspaper publisher has saw its share price shot up during the run up to the election.

In 2013, Utusan share price went up by 8.54% to 63.5 sen on May 3, the last trading day before polling day on May 5. Post-election, its shares shot up to 75 sen, up 18% between May 3 and May 22, 2013.

Utusan’s status as a penny stock, too, could make it a prime target for speculators and market punters. Its share price closed at 41 sen yesterday.

In the third quarter ended Sept 30, 2016, Utusan posted a net loss of RM17.57mil, or 15.87 sen loss per share on revenue of RM57.87mil.

Based on past trends, general elections would boost advertisement expenditure of media companies.

“When there is a general election, there is always an increase in circulation, readership and viewership,” an analyst says.

Even though Utusan is making losses, it is likely to be a subject of investor interest as many hold the view that the shareholders would not allow the company to go down.

Media Prima Bhd

It easily dominates the free-to-air television segment of the media industry and certain to be a beneficiary of general election.

Media Prima controls several television networks, newspapers and radio stations and has politically linked shareholders. The EPF has a 13.22% stake in Media Prima while Amanah Raya Bhd has 11.09%.

In 2013, the media company saw its share price went up post-election. Its share price rose 11.8% to RM1.99 a day after the election and subsequently, rose to RM2.44 on May 28, 2013.

The run-up, however, did not last. Although its share price has come down substantially, Media Prima remains attractive with its relatively high dividend yield of about 9%. Media Prima was last traded at RM1.02.

Media Prima slipped into the red in the third quarter ended Sept 30, 2016. The company posted a net loss of RM109.35mil on revenue of RM316.76mil.

However, considering its dominance in the free-to-air media segment, it would certainly gain because of the increase demand for advertisements.

KUB Malaysia Bhd

A diversified government-linked company, KUB is one stock that has remained range bound in its trading during the past general election. Its shares rose 11.3% to 39.5 sen a day after polling in 2013 but has remained subdued since then.

KUB may be better known as a bumiputra-controlled co-operative known as Koperasi Usaha Bersatu Malaysia Bhd. Back in the day, it engineered the reverse takeover of Permodalan Perak Bhd and subsequently listed on Bursa Malaysia in 1997 as KUB.

It is now 29.62% owned by Gaya Edisi Sdn Bhd and 22.52% by the Finance Ministry.

The company underwent massive kitchen-sinking and restructuring exercise last year. It is focusing on strengthening and expanding its three core businesses of energy, plantations and information and communications technology.

KUB used to be a favoured proxy in the run up to the general election in the past. However, its allure has diminished in recent years.

Destini Bhd

The company, which is involved in a wide range of activities from defence contracts to manufactuturing of rail equipment and provision of services for the oil and gas industry, is viewed as having links with Umno.

The largest shareholder is Datuk Rozabil Abdul Rahman with a 24.18% stake while the second-largest shareholder is Aromas Teraju Sdn Bhd, a company owned by the Ministry of Finance Inc.The company generally depends on contracts from the government in relation to the defence industry. It also provides aircraft maintenance, repair and overhaul (MRO) services.

It has also branched out into the oil and gas sector via the acquisition of Samudra Oil Services Sdn Bhd from Kejuruteraan Samudra Timur Bhd.

In June last year, Destini made a breakthrough in the provision of maintenance and repair works for the rail industry. Its subsidiary secured a RM62mil contract from the Transport Minstry to design, manufacture, supply, delivery, testing and commissioning of a new motor trolley and a new road rail vehicle for Keretapi Tanah Melayu Bhd.

Rozabil had said that leveraging on the group’s expertise in the aviation and marine sector, the group had set its sights on the rail sector and would be bidding for more maintenance repair and overhaul (MRO) works in the rail sector.

Last month, Destini secured a contract extension to provide MRO services and the supply of safety and survival-related equipment for the Royal Malaysian Air Force for RM98.2mil.

Destini was last traded at 66.5 sen.

http://www.thestar.com.my/business/business-news/2017/01/07/five-hot-stocks-ahead-of-elections/