4Q17 Review

• Healthy macro developments, steadier market tone. Malaysia’s 3Q GDP grew at 6.2% (fastest in 3 years) and lifted FBM KLCI to close 2.4% higher, while FBM Small Cap and FBM ACE gained 0.6% and 0.5% respectively in 4Q.

1Q18 Outlook

• KLCI may range within 1,760-1,830. As most of the technical indicators are positive, the FBM KLCI may charge higher after the retracement process over the past few months. We are projecting a range of 1,760-1,830. Also, we have a fundamental-driven end-2018 KLCI target of 1,880.

• Although subdued 2H17 sentiments… Market could be trading at a discount ahead of the one crucial factor, the long awaited GE14, which has kept most of the investors on the wait-and-see mood over the past months. Overall in 2H17, the KLCI trended sideways, despite stronger macro developments, positive regional performance and the bullish tone over in the US after the tax-bill overhaul conclusion.

• ...steadier commodity prices and ringgit outlook likely to improve equities’ performance. Malaysia, being labelled as a commodity country has noticed the ringgit outlook being lifted with the healthy recovery in Brent crude oil (hovering above US$60) and steel prices. We think the firmer ringgit trend could induce trading activities among domestic-oriented (consumer) stocks. Hence, we opine the KLCI may firm up ahead towards the GE14.

Retail Strategy

• Focus should return to domestic. With the re-emergence of foreign funds amid stronger ringgit outlook, recovering commodities, healthy macro developments in 4Q, we believe investors may prioritize their investment tone towards domestic-related such as consumer, construction/infrastructure, O&G and GE14 thematic ideas.

• Consumer sentiments to recover amid stronger ringgit. We opine that consumer sentiments/spending may further improve on the back of the stronger ringgit yoy, coupled with the recovery in GDP. Businesses that are consumer oriented and defensive nature may stay firmer in 1Q18.
• Construction and Infrastructure-related beneficiary . With the anticipated potential rail contract announcements such as ECRL, MRT3 and HSR to be seen within the next 1-2 years, we believe it would trigger higher trading interest among construction and building material segments.
• Thematic play - GE14 and O&G. Within the short window of 3-6 month, we think the excitement on GE14 could heighten and selected GLCs may trade actively ahead of the event. Also, with the steadier crude oil recovery, share prices of some O&G players may surprise on the upside.

• Top Picks for retailers: - Consumer: BJFOOD, LAYHONG. Infrastructure related: WCT, HIAPTEK, CSCSTEL. Thematic: PRESBHD, BHIC, DNEX, SAMCHEM

Source: Hong Leong Investment Bank Research - 5 Jan 2018