Good Opportunity to Bargain Hunt on Further Sharp Fall

The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) dipped to end at the week’s low following profit-taking after it peaked at another fresh 21-month high, with foreign investors exiting short-term trading positions after the government clued in potential intervention to arrest the recent weakness on the local currency unit. Disappointment from investors assessing the final batch of the current corporate earnings season and the cautious regional tone also acted to dampen market sentiment.

For the week, the FBM KLCI eased 11.09 points, or 0.72 percent, to 1,538.02, as mild gains on YTL Corp (+13sen) and TM (+8sen) were overshadowed by falls in Public Bank (-12sen), Maybank (-8sen), CIMB (-7sen) and Genting Berhad (-18sen). Average daily traded volume last week rose further to 4.51 billion shares, compared to 3.72 billion shares the previous week, while average daily traded value improved to RM3.92 billion, against the RM2.7 billion average the previous week.

Although more companies under our coverage surpassed expectations in 4Q23 results season and their earnings grew 3.8% YoY, the sequential contraction of 1.9% and a full year decline of 0.8% were dampeners. Post results season, we have trimmed our CY24 and CY25 earnings forecast by 2.5% and 2.2% respectively. The revision arises from tweaking our Banking, Healthcare, Oil & Gas, Plantations and Power & Utilities sectors’ earnings. Consequently, we are expecting an earnings growth of 17.6% and 9.3% in CY24 and CY25, respectively for stocks under our universe. Meanwhile, our earnings growth forecasts for FBMKLCI component stocks are 13.1% and 6.9% vs. consensus’ 18.3% and 5.0%, respectively.

Post results season, we maintain our end-2024 FBMKLCI target at 1,620, based on CY25 PER of 12.5x, with an upside bias due to 1) cheap ringgit drawing in greater foreign participation as funds take position ahead of possible Fed loosening, 2) pro growth policies and reforms gaining momentum with greater political stability adding confidence to government’s commitment to reduce fiscal deficit and government debts, 3) stronger corporate earnings in CY24 making valuation attractive vis-à-vis its long-term average of 16x, and 4) high possibilities of greater intervention from China to revive its economy, where details could emerge in its 14th National People’s Congress this week, which will support Malaysia’s narrative for a stronger economy in 2024 as exports recover. On the downside, Malaysian government backpedalling on its reform measures, delays in the US rate cut, and worsening geopolitical tensions between China and the US, Russia and NATO members, and Israel and Hamas are seen as major dampeners that could derail the positive outlook.

For stock picks, investors are advised to maintain exposure to Digital Economy (TM), Domestic Spending (AEON, IJM, SIMEPROP, SUNWAY & WPRTS), Foreign Buying of Undervalued Blue Chips (CIMB, HLBANK & MISC), Green Investment (MALAKOF & TENAGA), Recovery Stocks (DPHARMA & INARI), and Tourism Plays (TUNEPRO & FOCUSP).

Source: TA Research - 4 Mar 2024