The local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) extended gains to a fresh two-year high last week, copying regional gains as a sharp slowdown in US jobs growth raised optimism for interest rate cuts by the end of this year. Utility, property, energy and consumer heavyweights led gains as optimism over higher potential for US interest rate cuts by year-end sparked foreign buying, but profit-taking interest followed on mixed cues from US Federal Reserve officials that implied interest rate cuts this year may not be a done deal, raising uncertainty over the US interest rate and inflation outlook.

For the week, the local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) added 11.08 points or 0.7 percent, to 1,600.67, as gains in CIMB (+12sen), Public Bank (+6sen), YTL Corp (+14sen), Maybank (+7sen), Mr DIY (+12sen) and YTL Power (+18sen) offset falls in Axiata (-8sen), TM (-10sen), PPB Group (-40sen) and KLK (-48sen). Average daily traded volume last week improved further to 4.91 billion shares as compared to 4.03 billion shares the previous week, while average daily traded value climbed to RM3.38 billion, against the RM3.36 billion average the previous week.

The FBMKLCI took a breather for three continuous days after hitting a two-year high of 1,610.32 last Tuesday but the correction was very shallow. At last Friday’s close of 1,600.67, it has surged by 146 points or 10.0% year-to-date, which is a significant gain compared to regional peers, which have underperformed (Singapore +1.6%, Philippines +1.0%, Thailand - 3.1% and Indonesia -2.5%). This is a splendid performance given the buying support from the local institutional funds and the return of foreign funds in May after a strong net outflow of RM4.2bn in March and April alone. Net foreign inflow amounted to RM1.3bn so far in May that cushioned most of the net outflow of RM2.2mn in the first four month of this year.

Weaker than expected US labour data that rekindled hopes of a rate cut in the US contributed to much of the revival in foreign interest.

The benchmark index could kick off the week today with buying interest, mirroring gains in the US market last Friday, and as a positive response to the Pakatan Harapan’s victory in the Kuala Kubu Bahru state by-election last Saturday, which can be construed as “rakyat’s” endorsement to the government’s policy measures. Continued pickup to 0.3% YoY in China’s consumer price index for a third straight month in April, versus forecast 0.2% and March’s 0.1%, also could induce some positive spillover effects as it helps to negate concerns about deflationary spiral in the country, which is Malaysia’s largest trading partner. Nonetheless, anticipate profit taking consolidation to continue this week as investors await the release of key economic data locally and abroad.

Malaysia’s 1Q24 real GDP that will be released this Friday is not expected to deviate much from the Department of Statistics Malaysia’s advanced estimate of 3.9%, driven mainly by the services, manufacturing and mining sectors, but could trigger us to revise lower our 2024 GDP forecast from 4.7% as the 1Q growth deviates from our forecast of 4.2% YoY. On the same day, China will be releasing its industrial production and retail sales data that could provide some clue about the strength of its domestic demand. Investors will be watching closely the US producer price and consumer price indices for April as well this week, which will influence the Federal Reserve’s interest rate cut narratives.

These immediate term data aside, we maintain our view that the FBMKLCI is in a new major bull cycle that started in March 2020, after witnessing a downcycle from July 2014 to March 2020. Like previous upcycle that started from October 2008 low of 801.27 and ended higher at 1896.23 in July 2014, we believe the FBMKLCI is in midway of another major upcycle that will propel the benchmark index to a new high (historical high is 1,896.23 and it is possible to rise beyond 2,000 points) before the next general election in 2027. Major catalysts will be the structural reforms that will improve the nation’s financial standing, the huge inflow of foreign direct investments in growth sectors, resilient domestic spending aided by job security and policy measures, and strong corporate earnings growth. These factors should attract greater foreign participation as the US rate cut possibilities rise as the current foreign shareholding of 19.6% is low compared to an average 23.2% between 2014 and 2019 before volatile domestic political conditions eroded investor confidence.

Nonetheless, as the index does not move in a straight line and is subjected to profit taking pressures, it should go through a profit taking consolidation in the immediate-to-short term before continuing its north bound journey. Immediate support is seen at 1,570. After all the index has rallied tirelessly by almost 78 points since the 16 April low of 1,532.49. This expectation is consistent with the adage “Sell in May and Go Away,” which we deliberated in detail in last Monday’s report. As highlighted in our 2Q24 Market Strategy report released on 2 April, there is an upside bias to our end-2024 FBMKLCI target of 1,620 as the current steep discount (we use 13.4x CY25 PER as valuation multiple) to a 5-year historical PER average of 17.6x should narrow once investors are convinced about Malaysia’s growth prospects, political stability and improving outlook. We shall revisit our year-end target post conclusion of 1Q24 results reporting season this month.

Corporate

Paramount Corp Bhd has bought a 21.5% stake in Eco World International Bhd (EWI) (Not Rated) for RM170.6mn in cash, to be funded via a combination of bank borrowings and internally generated funds. Paramount’s wholly-owned subsidiary Flexsis Sdn Bhd bought 517mn EWI shares at 33 sen per share from GLL EWI (HK) Ltd (a unit of GuocoLand Ltd that is controlled by Tan Sri Quek Leng Chan) via a direct business transaction. The rationale for the acquisition is to accelerate its overseas expansion and diversification plan. The acquisition makes Flexsis the second largest shareholder in EWI, after Eco World Capital (International) Sdn Bhd with a 27% stake. (Bursa Malaysia/The Edge) Comment: The acquisition price of RM0.33/share, which translates to a FY24 P/NAV multiple of 0.51x, appears fair compared to the 0.5x P/NAV ratio that Datuk Tee paid to acquire 10.89% stake in E&O in Mar-21. The net entry cost of RM61.4mn after adjusting for dividends from EWI would result in an attractive land cost-to-GDV ratio of only 5.8%. We view the deal positively as it accelerates the realisation of PCB's overseas expansion and diversification strategy. Revised TP higher to RM1.71/share based on higher CY25 P/Bk multiple of 0.7x, reflecting value enhancement from its investment in EWI. Maintain Buy.

CelcomDigi Bhd has completed 44% of its nationwide network integration and modernisation programme as it modernised over 7,200 sites as at end-April, leading to improved download speeds of 20% to 26% and better signal strength of 13% to 16% in postconsolidation areas. By the end of June this year, CelcomDigi expects to surpass the 50% completion mark in four states and reach 60% in three states. (The Edge)

CIMB Securities Sdn Bhd, a unit of CIMB Group Holdings Bhd, said it is targeting “high” single-digit growth in market share by year end. (The Star)

Prime Minister Datuk Seri Anwar Ibrahim has urged Sime Darby Plantation Bhd to be a supporter and pioneer of the government's efforts to reduce dependency on foreign labour in the plantation sector. (The Edge)

InNature Bhd (Not Rated) is acquiring the operator of Burger & Lobster restaurants for RM21.3mn from its major shareholders in a related-party deal as part of a diversification plan. InNature will pay RM14.6mn with proceeds from its 2020 initial public offering, while the remainder of the price will be paid with internal cash. (Bursa Malaysia/The Edge)

Bursa Malaysia Securities Bhd has lifted AwanBiru Technology Bhd (Not Rated), formerly Prestariang Bhd, from its status as an affected listed issuer, after 3 years, as it had complied with the criteria for the upliftment. The exchange regulator has also lifted the trading suspension of Awantec shares, which will take effect on 13 May 2024. (Bursa Malaysia/The Edge)

Two subsidiaries of Nova MSC Bhd (Not Rated) have attracted the interest of another Singapore-based family office Mark Investment Group VCC, which is considering investing about RM41mn in the companies. Mark Investment is interested in investing SGD5mn (RM17.5mn) into Nova MSC's 60%-owned Dex-Lab Pte Ltd, which is involved in so-called social robots. It also would like to invest USD5mn into Nova MSC's 42%-owned EyRIS Pte Ltd, which is involved in the development of artificial intelligence for automated image analysis for eye diseases. Mark Investment has signed term sheets for the potential investments. The term sheets are non-binding and independent of each other. (Bursa Malaysia/The Edge)

Digital business solutions provider Cuscapi Bhd (Not Rated) said Securities Commission Malaysia (SC) has approved its associate company MX Global Sdn Bhd to facilitate the trading of the Worldcoin token on digital asset exchanges recognised by the SC. (Bursa Malaysia/The Edge)

Kobay Technology Bhd (Not Rated) has received an unusual market activity query from Bursa Malaysia after its share price hit limit-up on Friday. Kobay said that the Board is unaware of any corporate development that has not been previously announced, any rumour or report, or any other possible explanation to account for the trading activity. (Bursa Malaysia/The Edge)

Boustead Heavy Industries Corp Bhd (BHIC) (Not Rated) said it has completed the sale of its 20.8% stake in littoral combat ship company Boustead Naval Shipyard Sdn Bhd for RM1. BHIC said all the terms and conditions in respect of the completion of the share sale agreement have been complied and fulfilled on 10 May 2024. (Bursa Malaysia/NST Online)

Sarawak Cable Bhd (Not Rated) has identified "a strong alternative party" who is interested in spearheading a resuscitation plan for the group, after its plan to regularise its financials with the help of UK-based Serendib Capital Ltd fell through. The group said that the termination of the memorandum of agreement (MOA) with Serendib would not impact the group's regularisation plan to exit its Practice Note 17 (PN17) status. (Bursa Malaysia/The Edge)

Pharmaniaga Bhd (Not Rated), whose weak financials have just been flagged by its independent auditor for a second consecutive year, assures shareholders that it is committed to financial recovery and has made “strong and steady progress” on this. This is backed by resilient fundamentals and clear strategies to exit its PN17 status via the regularisation plan it had submitted to Bursa Malaysia in February this year. (Bursa Malaysia/Bernama)

LFE Corp Bhd (Not Rated) has secured an RM8.3mn piling contract from Puncakcity Development Sdn Bhd (PDSB). The related-party contract, commencing 15 May 2024, is slated for a duration of 9 months. (Bursa Malaysia/The Edge)

Main Market-bound Feytech Holdings Bhd's (Not Listed) initial public offering was oversubscribed by 15.6 times. (Bursa Malaysia/The Edge)

Ajiya Bhd (Not Rated) has entered into a loan agreement with Chin Hin Group Bhd (Not Rated) to provide a loan of up to RM250mn to Chin Hin. The loan facility will have an interest rate of 7.5% per annum. Ajiya said the loan is expected to be drawn down by Chin Hin in several tranches within 24 months from the date when all conditions of the loan agreement have been fulfilled. (Bursa Malaysia/The Edge)

At the close of Chin Hin Group Bhd's (Not Rated) mandatory takeover offer (MGO) for all the remaining stakes in Signature International Bhd (SIB) (Not Rated), Chin Hin received acceptances for over 245.5mn shares, or the equivalent of a 38.7% stake. Consequently, the home-grown building materials specialist's shareholding in SIB has been raised to 72.2%, from 33.5%. (Bursa Malaysia/The Edge)

MAA Group Bhd (Not Rated) has bought an additional 5.0% stake in troubled PN17 company KNM Group Bhd (Not Rated) for RM33.2mn or an average price of 16.5 sen per share via a direct business transaction. The acquisition raised MAA’s direct and indirect stake in KNM to 13.5%. (Bursa Malaysia/The Edge)

BCM Alliance Bhd’s (Not Rated) largest shareholder Kiu Cu Seng has disposed of his entire shareholding of 305.1mn shares, or a 15% stake obtained via exercising employee share option scheme in January 2022. Kiu sold his stake on the open market on Friday, but the transaction price was not revealed. (Bursa Malaysia/The Edge)

Jiankun International Bhd (Not Rated) has redesignated its president Datuk Saiful Nizam Mohd Yusoff as non-independent and non-executive chairman, effective 10 May 2024. Saiful Nizam, son-in-law of deputy prime minister Datuk Seri Dr Ahmad Zahid Hamidi, holds 2.5mn shares or a 0.5% stake in Jiankun. (Bursa Malaysia/The Edge)

Mi Technovation Bhd (Not Rated) saw its net profit more than quadruple YoY to RM26.8mn in 1QFY24, from RM6.4mn in the same period last year. This jump was driven by higher revenue, which climbed by 39.4% YoY to RM107.1mn on stronger demand from customers, as well as foreign exchange gains. (Bursa Malaysia/The Edge)

Source: TA Research - 13 May 2024