On cement stocks, the share prices of CMS and Malayan Cement were still down year-to-date despite their evident results recovery in third quarter 2020 – a prelude to better quarters ahead. PETALING JAYA: RHB Research sees the basic materials sector as a “reflation trade play” heading into 2021. The research unit expects the aggregate earnings of the sector to leap by 200% year-on-year, broadly led by Press Metal Bhd, Cahya Mata Sarawak Bhd (CMS), Malayan Cement Bhd and Luxchem Corp Bhd, which are under its stocks coverage. “Valuations remain appealing, in light of the sector’s pro-cyclical nature, especially for cement stocks that still offer sizable upside, ” said the research unit in its latest report. RHB Research has an “overweight”call on the sector with buy calls on Press Metal, CMS and Malayan Cement, which are seen to be environmental, social and governance (ESG)-compatible, and this in turn will likely garner favourable consideration by investors. On cement stocks, the share prices of CMS and Malayan Cement were still down year-to-date despite their evident results recovery in third quarter 2020 – a prelude to better quarters ahead. The operating environment for both companies also continued to look favourable heading into next year. This is supported by the recovery in building materials demand amid additional construction works in the pipeline and lower energy feedstock costs. “We expect promising turnaround in CMS and Malayan Cement forecast earnings for 2021 CY21, ” added the research unit. Press Metal’s growth prospects also stand out among other local blue-chip stocks. “We expect this company to remain in favour as a strong large-cap proxy to the global economic recovery, ” said RHB Research. This is premised on its eye-catching growth of 40% in terms of compounded annual growth rate seen over the FY2019-2022 period. The research unit also saw a potential re-rating for the stock. According to RHB Research, Press Metal’s share price is still tracking its five-year price earnings multiple mean of 28 times, as the current London Metal Exchange aluminium price uptrend continues to pose an upside risk to earnings. Meanwhile, the research unit believed that the ESG focus would be positively-biased for its buy picks. “This is in view of Press Metal’s low-carbon footprint ranking – which is amongst the best relative to global peers in the aluminium industry, which may see a decarbonisation shake-up around the corner. “CMS and Malayan Cement are also deemed ESG-compatible, owing to their constituency in the Bursa FTSE4Good index, ” said the research unit. Hence, RHB Research continued to favour Press Metal for its strong earnings growth prospects, which stand out among other large-cap cyclicals. For mid-caps, it prefers CMS for its exposure to Sarawak infrastructure development and the group’s good earnings visibility. The key downside risks include a deterioration in global macroeconomic conditions, a delay in Covid 19 inoculations, unfavourable raw material and foreign exchange fluctuations, as well as the extension of lockdown-related restrictions affecting industrial activities.
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