This year, RHB’s list of 10 “diamonds” again spans Malaysia, Indonesia and Singapore. Compared to last year’s list, one stock has made a reappearance: Heineken Malaysia.
Off the list this year, however, are Singapore-listed Delfi, Food Empire and HRnetGroup, which returned 3.3%, 3.6% and 3.0%, respectively, at their peak — the lowest returns among last year’s 10 picks.
Malaysia’s Kelington Group was the best performer, which returned 46.1% at its peak.
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Instead, Catalist-listed ISOTeam is the sole Singaporean name this year. Analyst Alfie Yeo has a target price of 8 cents on the building maintenance firm and forecasts an ROE of 17%–20% between FY2025 and FY2027.
ISOTeam started by providing estate painting services, and Yeo believes its earnings growth “should be driven by more government projects” ahead of the general election due by the end of 2025, along with better margins from operating efficiency.
As of Feb 7, the group’s order book stood at $188.7 million. ISOTeam is also turning asset-light and disposing of its cranes, renting them from third parties on a project basis. As a result, property, plant and equipment costs are likely to decrease, adds the RHB analyst.
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ISOTeam should be able to sustain its “slightly higher margins”, says Yeo. In FY2024 ended June 30, 2024, its projects were tendered at healthier margins, which improved overall profitability and enabled earnings to turn around.
Finally, ISOTeam is trading below the sector average, at five to six times FY2025 priceto-earnings (P/E) compared to seven to eight times for Singapore construction peers.
Apart from Heineken Malaysia and ISOTeam, the other companies chosen for their potential to deliver strong earnings growth are Malaysia’s beverage maker Carlsberg Brewery, dairy company Farm Fresh, clean energy solutions provider Solarvest, civil engineering group Sunway Construction and fibre broadband provider Telekom Malaysia; along with Indonesia’s auto parts manufacturer Astra Otoparts, digital infrastructure provider Mastersystem Infotama and FMCG player Mayora Indah.
The companies selected in this report are “not yet ‘winners’ — at least not in the eyes of the market”, say RHB’s analysts. “However, based on our track record over the past nine years and multiple editions of this report, we have consistently identified future industry champions ahead of broader market recognition.”
These “ESG diamonds” are not “well-established market favourites or investor darlings”, they add. “Instead, our focus is on identifying undervalued companies — those that may be overlooked or out of favour with investors and, as a result, are trading below their industry’s average valuation multiples.”
This selection approach means that many large-cap companies, which are already widely recognised and fairly valued by the market, may not meet RHB’s screening criteria.
RHB’s analysts stress that this is a long-term investment strategy. “Just as coal takes time to transform into diamonds, we believe that, over time, each of these companies has the potential to generate solid absolute returns.”
Tables: RHB, Bloomberg
