High yielders ; Value pick

2nd December 2008
Dividend picks. In the medium term, concerns about growth
will likely continue to weigh on the market. In this
environment, we like stocks with relatively resilient dividend
flows. Despite projected slower economic growth, we
expect Public Bank’s operating parameters (asset quality,
loans growth, ROE momentum) to remain strong and
support dividend yields of 7-8%. Utility-type earnings at YTL
Power and PLUS Expressway should be relatively resilient to
sustain high dividend payouts. BAT should also be a safe
haven for dividend seekers.
Value stocks. With the market’s 40% YTD drop, several
stocks have tested lows last seen in 1998. Our picks here
are IJM Corp (0.5x FY10 BV, below 1998 low of 0.6x), WCT
(0.9x FY09 BV, versus 1998 low of 0.8x), AMMB (0.7x BV,
lowest since 1999) and KNM (0.9x BV, all-time low).
Downside for Sime Darby, Maybank and BCHB. On the
other hand, we see further downside for Sime Darby, being
the most expensive in the sector at 10.8x FY09F EPS with
projected 44% drop in earnings and lower dividends. For
Maybank, we see risks in the consolidation of its
acquisitions, especially BII, and are concerned about the
potentially higher borrowing costs it might incur for the rest
of its capital raising exercise. BCHB remains Fully Valued on
continued weak capital market activities. There could be
further increases in operating expenses resulting from the
consolidation of its acquisitions (i.e. Lippo-Niaga merger and
Bank Thai).