Kenanga Investment Bank, in its Market Strategy note today (Mar 22) said they maintained their end-CY24 FBM KLCI target of 1,605 pts based on 15x CY24F earnings (+16.0%), which is consistent with its historical PER range of between 14x and 16x post the economy reopening.
It projects the FBMKLCI’s earnings growth to moderate to 6.2% in CY25F.
The house continues to believe the key driver for global markets in CY24 is policy easing by central banks in advanced economies, particularly the Fed, which firstly, will make EM assets attractive again given a lower risk-free return of DM assets, and secondly, set in motion a synchronised recovery in advanced economies, fuelling an export boom in the largely still export-dependent EM economies.
During the Federal Open Market Committee (FOMC) meeting this month, the Fed kept the target range of its funds rate at 5.25%-5.50% and end-CY24 Fed Funds rate forecast of 4.6% (unchanged from three months ago), effectively signalling three rate cuts in CY24.
While Kenanga expects global stock markets including the Malaysian bourse to continue to do well during the remainder of CY24, they identify the risk factors that could derail the rally in the local market, but take comfort that they are rather manageable, as follows :- (i) policy rates to stay higher for longer in advanced economies led by the US, (ii) potential threats to political stability locally, (iii) the health of China’s economy, and (iv) freight cost inflation and supply-chain disruptions arising from the Red Sea conflict.
Prime Minister Datuk Seri Anwar Ibrahim’s position as Malaysia’s 10th Prime Minister has been solidified by the inaugural address to the Parliament by Yang di-Pertuan Agong Sultan Ibrahim in Feb 2024 in which His Majesty said that he “will not entertain any request from any party that may compromise the political stability of the country”.
While experts generally agree that there will not be a “Lehman moment” for China, all eyes are on how the Chinese authorities are going to handle the property and local government debt crises. Meanwhile, a stronger-than-expected recovery in advanced economies during 2HCY24 could lift “the factory of the world” out of the doldrums.
The house picks banks for a proxy to the return of foreign investors given the heavy weighting banking stocks command in various indices. And is upbeat on contractors given the imminent roll-out of MRT3 (RM45b), Bayan Lepas LRT (RM9.5b) and six flood mitigation projects reportedly to be worth RM13b.
In the oil & gas sector, Kenanga likes offshore supply vessel (OSV) owners due to supply crunch on a surge in demand leading to strong charter rates, FPSO players given the current upcycle in the FPSO sector and the storage segment that has shown signs of recovery.
In the renewable energy space, it likes PV System EPCC contractors given the strong job flow underpinned by Corporate Green Power Programme (CGPP), Large-Scale Solar 5 (LSS5) and an additional quota of 400MW under the net energy metering (NEM) scheme.
For the tech sector, Kenanga believes it takes time for the recovery in global semiconductor sales to be fully transmitted to local players that are mostly at the back end of the supply chain. For now, we nibble on a large-cap and liquid name, i.e. INARI.
Kenanga’s top conventional picks are PBBANK, RHBBANK, TM, GAMUDA, DIALOG, INARI, IJM, ABMB, SUNCON and MBMR, while top Shariah picks are IHH, CDB, TM, GAMUDA, DIALOG, INARI, F&N, IJM, SUNCON and MBMR along with top small-cap picks being PIE, KAREX, MKH, TGUAN, ENGTEX and ICON.
