This article first appeared in Capital, The Edge Malaysia Weekly on December 25, 2023 - December 31, 2023

READERS of a certain age would know that The Edge used to have a Best Analyst Poll in the early 2000s, where around year end, fund managers would vote for who they thought was the best strategist, economist as well as analyst for a list of sectors. While the results of these polls were not always to our liking, we only put our foot down when a fund manager sent in his vote for the year and said that The Edge should multiply that vote by 10 since that outfit has 10 fund managers.

Started in 2005, The Edge Best Call Awards is our best-effort attempt to recognise good fundamental stock analysis and its importance in making informed investment decisions. We skipped one year but brought it back by popular demand. Perhaps with time, artificial intelligence (AI) would be better placed to assist, if not take over, the task of compiling, verifying and conducting peer evaluations for these submissions. By then, would submissions also come from AI-powered bots making stock recommendations, we wonder. But we digress.

For 2023, the 18th edition of The Edge Best Call Awards received 73 nominations for 54 stocks covered by analysts from 15 research outfits, the same number of nominations as last year but with one more stock and two additional research outfits.

Five of this year’s 73 nominees made the cut during the first round of evaluation, with 19 others long-listed. Half made the final list, which includes some imperfect but commendable research coverage.

Apart from absolute price movements, brownie points were accorded to stock discoveries, basically good analysis on hidden gems. More weight was given to contrarian calls on stocks with a larger market capitalisation, given that it is a lot harder for such stocks to stage large gains and for any analyst to stand out when a stock is so well followed. We discounted sharp but potentially short-lived gains — particularly thinly traded small stocks — and accorded brownie points to strong views, insights and analysis proven right within an acceptable time frame. Where practicable, we also considered the analyst’s views on the sector. Well-written research notes and submissions were a plus.

We also preferred timely “buy” or “sell” calls, especially those against the consensus. Do email The Edge at bestcalls@bizedge.com should any company exclude you from their briefings due to your good fundamental analysis. Here, we quote the late Charlie Munger (1924-2023), who once said: “The best thing a human being can do is to help another human being know more.”

Do look out for our advertisement welcoming submissions in The Edge and our sister publication, the CEO Morning Brief, in early November 2024. Feedback, good and bad, and early submissions for 2024 with the relevant research notes are welcome throughout the year.

In no particular order, here are the winners for 2023, selected based on submissions and publicly available data. Congratulations to all winners. To the unsung stellar stock pickers, keep up the good work. Merry Christmas and Happy New Year 2024!

It is not easy to call a “sell” when 10 of your peers are saying “buy” — more so when the “sell” call is one with a target price that is one-third below the consensus. That was precisely what Macquarie Research’s Gan Huan Wen did when initiating coverage on Mr DIY Group (M) Bhd on Aug 12, 2022 with a “sell” call and target price of RM1.70 — 17.6% below where the stock was at on the open market and 45% below the most bullish target price at the time.

Highlighting Walmart’s second profit warning in two months and that higher food and fuel inflation in the US was affecting customers’ ability to afford other goods there, Gan told clients in a 19-page initiation note that spiking food inflation in Malaysia could have a similar impact on consumer spending here, resulting in less money going to household furnishing and discretionary items at Mr DIY’s outlets.

Noting that its proprietary quant model indicates that Mr DIY was “overvalued with negative earnings momentum” and that 12 of 14 brokers tracking the stock had retained a positive (“buy”) stance despite two quarters of earnings downgrades, Gan rightly told clients that he believes “the market will continue to take profit on Mr DIY as earnings announcements in the coming quarters miss expectations”. Since then, the stock had slipped as much as 34% to as low as RM1.356 on Aug 7 this year, before retracing some ground. Gan, who now has a RM1.20 target price and the only “underperform” call, is first on the Bloomberg Absolute Return Rank, with 28.14% positive one-year return.

We also acknowledge Affin Hwang Investment Bank Research’s coverage on Mr DIY, given that its (former) analyst Damia Othman was the first to have a “sell” call on Aug 5, 2022 with a target price of RM2.06. Coverage was taken over by Chareesa Usaha, who continued with a “sell” call from Feb 15 this year. Affin Hwang’s Low Jing Yuan took over coverage of Mr DIY from Nov 20 this year with a “hold” recommendation and currently has a RM1.53 target price.

It is a double nod for Kenanga Investment Bank Research’s Samuel Tan Kai Bin for two contrarian “underperform” or “sell” calls in February this year, following disappointing earnings releases from good companies going through patches of slower demand.

The share price of D&O Green Technologies Bhd had slipped 7.1% from its highest close year to date of RM4.91 on Feb 2 to RM4.56 on Feb 23 when Tan became the first of five analysts tracking the stock to cut his recommendation to “underperform” with a RM3.51 target price — some 23% below the share price at the time.

Even though Tan liked D&O for its “unique exposure to the automotive LED (light-emitting diode) business” as well as the electric vehicle market”, he told clients that valuations were “stretched after the recent run-up in its share price”, noting that 4QFY2022 earnings had missed consensus expectations by 25%, with margins compressed by higher fixed costs from the underutilisation of expanded capacity.

At the time, there were two “buy” calls and two “hold” calls on D&O, with target prices ranging from RM4.13 to RM5.16, according to Bloomberg data. Since Tan’s downgrade, the counter has lost about one-third of its value over eight months to RM3.08 on Oct 24 this year before retracing some ground. While D&O’s share price is above Tan’s target price, the contrarian call was directionally right. His recommendation for D&O was ranked first by Bloomberg, with one-year return at 21.49% at the time of writing.

On Feb 27, Tan was also the first among peers to downgrade SKP Resources Bhd to “underperform” from “outperform” when the plastic contract manufacturer’s 9MFY2023 earnings came in short of expectations. While he likes SKP for being a direct proxy for a fast-growing premium household product brand, having better bargaining power by being vertically integrated, and its ability to maintain margins with a cost pass-through mechanism to mitigate fluctuations in material costs, Tan told clients that SKP’s “single customer concentration leaves it vulnerable should the customer hit a soft patch”.

With hindsight, we know that the downgrade on SKP should have come at least three weeks earlier, given that the stock had already fallen 23% from its 52-week high before then. Still, SKP’s share price skidded another 30% before Tan upgraded the stock to “market perform” or “hold” in late August. And of the four downgrades that happened that same day, Tan was the only one to cut his call to “sell”. Of the seven analyst recommendations on SKP ranked by Bloomberg at the time of writing, Tan’s was the only one with a positive one-year return.

Timing was what tipped the scales in Gan Huey Ling’s favour. While the AmInvestment Bank Research analyst had been among the last on the street to call a “buy” on YTL Power International Bhd, the stock — which had been hovering sideways for some time — began its phenomenal upward trajectory about a week after she upgraded her recommendation from “hold” to “buy” on Feb 24 this year when the share price was 71 sen. Since then, the counter has more than tripled, to close as high as RM2.51 on Dec 11 this year, reflecting a 241% total return over 10 months, with investors also receiving higher dividends year on year in 2023.

In her Feb 24 note, Gan told clients that YTL Power was “trading at a bargain” at only nine times FY2023 earnings and “offers compelling dividend yields of 7%”. She raised her fair value for YTL Power to RM1 after YTL Power Seraya’s sterling performance in Singapore helped YTL Power’s 1HFY2023 net profit exceed consensus by 80%, thus compensating for poor results in the water/sewage (Wessex Water) and telecommunications (YES) divisions. The Singapore earnings remained stellar in the third and fourth quarters, leading to further upgrades of her target price, which was revised to RM2.70 on Nov 24 this year.

A special mention goes to Affin Hwang Research’s Issac Chow, who also upgraded the stock to a “buy” call from “hold” on Feb 24 this year, according to Bloomberg data.

Perhaps it reflected investors’ preference for direct exposure to YTL Corp Bhd’s 49.08%-owned subsidiary YTL Power International Bhd, which is among stocks whose share price had run the most this year. To our surprise, compared with 10 analysts tracking YTL Power, there are only two analysts actively tracking YTL Corp, whose share price was up 230% year to date at the time of writing.

MIDF Amanah Investment Bank Research’s Hafriz Hezry Harihodin, who is among analysts who have kept a “buy” recommendation on YTL Power for some years, has been telling clients to “buy” YTL Corp since mid-May 2021 when its share price was hovering around 60 sen. YTL Corp shares have since tripled in value, closing as high as RM1.91 on Dec 14 this year.

While CGS-CIMB Research’s Chong Tjen-San only took over coverage of YTL Corp from a colleague this year, his “add” call on May 25 this year was not “inherited” from his colleague, who had a “hold” recommendation when dropping coverage, according to Bloomberg data.

Clients likely also benefited from a June 27 note highlighting three takeaways from a roadshow with YTL chairman Tan Sri Francis Yeoh with 10 investors in Singapore: higher dividends; more effort to unlock value; and sale of peripheral assets. YTL Corp’s share price was 95 sen then, implying a 34.7% upside potential to Chong’s target price of RM1.28 at the time — higher than Hafriz’s RM1.05.

Both analysts still have a “buy” recommendation on YTL Corp as the counter closed at RM1.91 on Dec 15, which is above Hafriz’s target price of RM1.78 but below Chong’s target price of RM2.13.

There was a sea of wrong “buy” calls on Dialog Group Bhd, whose share price had been on a general downward trend from around RM3.80 in late May 2020 to just below RM1.70 in late October 2022 as earnings missed expectations. Macquarie Research’s Ben Shane Lim was no exception.

Yet, clients who did sell Dialog shares when he downgraded his recommendation from “outperform” to “underperform” on Jan 26 this year would have sold near the 52-week high of RM2.68 on Jan 25 and been spared a 27% decline as the stock skidded from the RM2.60 level to as low as RM1.90 on Dec 13 this year.

At the point of the downgrade, not only was Macquarie’s target price the lowest at RM2.20, there were 13 “buy” calls on the street. CLSA’s Abdul Hadi Manaf was the only other bearish analyst, having cut Dialog to “reduce” on Jan 18 when the share price was around RM2.50, according to Bloomberg data.

More importantly, the selection of Macquarie’s call acknowledges the extra effort put in to provide clients with additional insights into relatively opaque published financials that had very little breakdown of key operating segments, thus offering scant insights into operational drivers. Using filings obtained from the Companies Commission of Malaysia (CCM) and Singapore’s Accounting and Corporate Regulatory Authority (ACRA), Macquarie’s Lim reconstructed about 95% of Dialog’s associate/joint-venture earnings as well as 60% to 70% of consolidated earnings before interest, taxes, depreciation and amortisation (Ebitda). The individual accounts allowed better modelling of individual project income streams and improved discounted cash flow (DCF) valuations.

When downgrading Dialog to “underperform” on Jan 26 with a RM2.20 target price based on the sum-of-parts method, Lim had noted the share price’s “strong outperformance over the past four months” but told clients that the company’s pivot to upstream activities “will likely support growth but limits valuation upside”. He has had a “neutral” call and RM2.15 target price since Nov 21.

BIMB Securities Research’s Azim Faris Ab Rahim has been bullish on Velesto Energy Bhd for some years now, having mostly a “buy” recommendation since as far back as July 2018, with positive implied returns throughout the period, according to Bloomberg data.

Investors who bought Velesto shares when he upgraded his recommendation from “hold” to “buy” on March 2 this year would have seen 38.5% gains over seven months as the share price went from 19.5 sen to as high as 27 sen on Sept 20 this year.

According to Bloomberg data, there were only two “buy” calls on Velesto as at March 2 this year, with the other being CGS-CIMB Research’s Raymond Yap, who raised his recommendation from “hold” to “add” a day earlier on March 1. At the time, there were five “sell” calls and one “hold” recommendation.

When upgrading Velesto to “buy” with a 30 sen target price on March 2, Azim told clients that the rig market is tightening towards the peak cycle, with utilisation rates at 91% as at January 2023, which is near the peak of the previous cycle. According to him, the fact that Petroliam Nasional Bhd (Petronas) had approved a revised rate for Velesto’s jack-up rig effective March 2023 meant that Velesto should be able to offset the impact of rising operating expenditure, “thus pushing the company back into profitability beginning 1Q2023”. Noting that Velesto’s share price had plunged by 32% following its uninspiring 4Q2022 results and was hovering at the 19 sen levels on March 1, Azim rightly said it was “attractive to accumulate the stock at current levels” back then and upgraded it.

Those familiar with SFP Tech Holdings Bhd would know that two-thirds of the Penang-based engineering firm, which provides customised factory automation solutions, is controlled by its founder and managing director Keoh Beng Huat.

UOB Kay Hian Research’s Desmond Chong is one of three analysts to initiate coverage in June 2022 when SFP Tech made its debut on the ACE Market. His target price of 63 sen at the time (adjusted to 22 sen following a two-for-one bonus issue in April 2023) was more than double the initial public offering price of 30 sen (adjusted to 10 sen post-bonus issue) and the highest among peers, according to Bloomberg data. SFP Tech beat expectations as it closed at 67 sen (22.2 sen adjusted) on its maiden trading day and continued to trend higher, gaining more than five times to RM1.168 (adjusted) on July 20 this year.

Chong is the only one of the three analysts to continue active coverage of SFP Tech, according to Bloomberg data. When maintaining his “buy” recommendation and RM1.20 target price on the counter on Nov 20, 2023, Chong told clients that SFP Tech’s strong 9MFY2023 results “bucked the soft industry trend thanks to trade diversion and its unique positioning in the supply chain” and that he sees “multiple legs of growth that can supercharge a three-year core net profit CAGR (compound annual growth rate) of 48%”. At the time, he said a “blue sky” valuation suggests “a potentially higher target price of RM1.63 (at 48 times FY2024 earnings)”. Plans are underway for SFP Tech’s transfer to the Main Market.

In a nutshell, this was the right call on a stock that had lost its shine three years ago as valuations on glove stocks came back to earth post-Covid-19 on the back of industry-wide overcapacity challenges.

Among the 21 analysts actively tracking Hartalega Holdings Bhd, Nomura Research’s Kong Heng Siong was the only one who upgraded the leading nitrile glove maker to “buy” on March 17, 2023. Perhaps also taking note of the positive industry news from Top Glove Corp Bhd’s briefing, there were four other upgrades on Hartalega that same day, three to “neutral” while another had a “trading buy”.

In his March 17 note headlined “worst may be over for ASPs (average sale prices) and utilisation rates”, Kong told clients that “the risk-to-reward ratio has turned more favourable” although the pace of recovery “could be slower” than previously thought. At the point of upgrade, his RM2.42 target price implied a 36% upside potential and was the highest on the street, with the second highest being RM2. Hartalega’s share price appreciated just over 50% in only two months to RM2.68 on May 18 from RM1.78 on March 16.

With hindsight, we know that the call was far from perfect, given that Hartalega’s share price had halved over one month to close at RM1.89 on June 30. Yet, the continued “buy” call does not look too shabby at the point of evaluation, with the number of Covid-19 cases rising in Southeast Asia and Hartalega shares closing as high as RM2.76 on Dec 14 — beating all but three target prices among the 20 analysts actively tracking it. Kong, who expects Hartalega to be a beneficiary of the glove industry’s return to profitability, “as it has historically been the most efficient player in the industry”, reiterated a “buy” call with a RM2.45 target price on Dec 13.

With oil palm prices largely moving sideways between RM3,200 and RM4,400 a tonne in 2023, versus over RM7,000 in early 2022 after Russia attacked Ukraine, plantation stocks were not on top of investors’ buy list this year.

Yet, investors who took note of the recommendation of Affin Hwang Investment Bank Research’s Nadia Aquidah Subhan to “buy” Jaya Tiasa Holdings Bhd — when she upgraded the stock on May 22 this year with an 82 sen target price — would have benefited as the share price appreciated 55.7% over six months from 63.6 sen to as high as 99 sen on Nov 21 this year.

While Jaya Tiasa’s 9MFY2023 earnings came in short of her expectations just a week later on May 30, Nadia kept the “buy” rating as she continues to find Jaya Tiasa’s valuations “attractive” relative to her sum-of-parts-derived valuation. Back then, she trimmed her target price to 76 sen after she cut her FY2023 to FY2025 core earnings forecast by 4.6% to 12.6%. By late August, however, she turned more bullish and upgraded her target price to 85 sen. From there, Jaya Tiasa’s share price actually ran above her target in September. Nadia reiterated her “buy” call on Nov 29 with an even higher target price of RM1.18. It remains to be seen if the counter will continue to perform well but brownie points were accorded as she is the only analyst actively tracking Jaya Tiasa, according to Bloomberg data.

Investors who bought OSK Holdings Bhd’s shares when Hong Leong Investment Bank Research’s Tan Kai Shuen initiated coverage with “buy” call and a RM1.42 target price on Dec 8, 2022 would have enjoyed 42% gains within nine months as the stock closed as high as RM1.26 on Sept 15, 2023.

That Tan’s coverage comes under the Bursa Malaysia Research Incentive Scheme (RISE) means that investors looking for more information and analysis on OSK Holdings’ earnings can freely access his research note on Bursa Malaysia’s website.

According to Bloomberg data, he is the only analyst actively tracking OSK Holdings. Moreover, judging by the updates in target prices in July, August, October, November and December this year, the research coverage is far from the bare minimum of just one earnings update every quarter.

In his Nov 28 note, Tan raised his target price to RM1.77 after raising the earnings forecast when OSK Holdings’ 9MFY2023 earnings came in at 80.5% of full-year forecast due to “stronger than expected contribution from industries and capital financing”. Closing at RM1.22 back then, Tan also said the stock “provides a good 5.7% dividend yield” as he expects OSK Holdings to pay a dividend of seven sen per share for FY2023. That implies the declaration of a final dividend of four sen per share when its 4QFY2023 earnings are released in late February next year, the same as FY2023, given that OSK Holdings has already paid three sen dividend per share (DPS) in 9MFY2023 (up from two sen in 9MFY2022).

The share price gains at United U-Li Corp Bhd (UULI) were a phenomenal 786% over three years and eight months, if measured from a low of 20.8 sen on March 23, 2020 to its recent high of RM1.843 on Nov 2, 2023. Some may argue that the market capitalisation is still small, even though it had multiplied by eight times from RM50.27 million to RM407.3 million over that period. Year-to-date gains were about 64% on Nov 2.

It is also true that UULI’s share price has declined 17% from its recent peak the past six weeks, casting doubt on the current “outperform” call by Kenanga Investment Bank Research, which has had at least six analysts actively tracking the stock since research coverage was initiated six years ago in May 2017.

Kenanga’s Nigel Ng Ken Hou took over coverage in May 2023 and was right to have a “market perform” instead of maintaining an “outperform” call. An investor who bought UULI shares when Ng upgraded his call to “outperform” on Aug 23 this year would have enjoyed a 78% gain in just 10 weeks if measured at its year-to-date high of RM1.84 on Nov 2. It remains to be seen if Ng’s target price of RM2.18 for UULI will be proven right, but brownie points are accorded for it being the only coverage on a stock that has performed relatively well this year.

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