Alpha Picks: Jaks, Velesto, AQRS

We highlight Jaks, Velesto and AQRS as our high-conviction alpha picks, 3 in our universe of 119 stocks under coverage that we believe will generate significant price upside for 2019. Heavily sold down in 2018, we think that expectations are now quite muted and valuations have significantly de-rated for these names. Meanwhile, we see strong catalysts to provide a meaningful share-price rebound.

Bargain Hunting in Bombed-out Names

Although the KLCI is down by 1.3% YTD, there has been a rotation into stocks that were heavily sold down in 2018. Given that investor expectations have been revised lower and valuation multiples have derated quite significantly, we think that some of these heavily sold-down stocks could rebound rather quickly, especially in the KL Construction Index, one of the poorest-performing sectors in 2018.

Both Large and Small Caps Offer Opportunities

While there is a multitude of stocks that fall into the category of heavily sold-down names, we have screened our coverage of 119 stocks and highlight those names on which we have Buy ratings and that have also underperformed relative to our target prices in 2018 (Fig 2). In the largecap space (>RM1bn), among stocks that have >50% upside potential to their TPs, we identify Genting Berhad (GENT MK, RM6.41), Inari (INRI MK, RM1.41) and Globetronics (GTB MK, RM1.63) as stocks that are attractive. For the mid-small cap names, Bumi Armada (BAB MK, RM0.16), Jaks (JAK MK, RM0.47), AQRS (AQRS MK, RM1.01), Tune Protect (TIH MK, RM0.61) and Velesto (VEB MK, RM0.19) fall into this criteria, which we deem as attractive (given the stock-price pullback and their respective TP upside potential), although we are no less optimistic on those Buy-rated names that we have not highlighted beyond these few, given their equally favourable fundamentals.

… But Our Preferred Alpha Picks – Jaks, Velesto, AQRS

Our preferred alpha picks, which we define as quasi-penny stocks offering the best upside, are Jaks, Velesto and AQRS. We see value in Jaks’ Vietnam power plant and we think that the property issue should be resolved by this year. For Velesto, better job opportunities will likely fuel an earnings recovery, while positive newsflow on the construction sector should see investor confidence returning to AQRS.

Source: Affin Hwang Research - 10 Jan 2019