Kenanga Research & Investment
1Q20 Investment Strategy - Ratcheting Up Returns in 2020
Malaysian equities are set for a better year in 2020 with the resumption of earnings growth after a 2-year hiatus thanks firstly, to subsiding external risks; secondly, to recovering commodity prices; thirdly, to the anticipated revival of mega infrastructure projects and finally, to the positive impact of trade diversion on investments and exports. The recently concluded 3QCY19 corporate results point to the arrest of earnings decline with a turnaround in subsequent quarters starting to show. Having fallen 5% since the start of the year, the valuation for the FBMKLCI looks appealing now trading as it is on a 12-month forward PE of 15.7x which is below both the 5-year and 7-year averages. With forward dividends looking intact, its dividend yield of 3.8% now exceeds the 10-year MGS yield of 3.4% - an occurrence last observed 6 years ago. Our end-2020 bottom-up target level for the FBKLCI is 1,712, which happens to coincide with our top-down target derived by applying at 15.9x PE on 2021 EPS. Overweight cyclicals (technology and plantation) and stay with the banks. Our top picks for 1QCY20 are AIRPORT (OP; TP: RM9.90), BAUTO (OP, TP: RM2.65), CIMB (OP; TP: RM6.45), GAMUDA (MP, TP: RM3.90), GENP (OP, TP: RM12.10), KLK (OP; TP: RM32.90), MAYBANK (OP; TP: RM9.70), MPI (OP; TP: RM14.00), PADINI (OP, TP: RM4.00) and PESTECH (OP; TP: RM1.75).
2020EPS growth of 7.5% for FBMKLCI: The conclusion of the 3QCY19 results season and a relook at the plantation sector led us to raise EPS for 2019 and 2020 from 94.7 sen/100.9 sen to 95.2 sen/102.4 sen which represent revisions in EPS growth expectations from -3.1%/6.5% to -2.6%/7.5%.
Source: Kenanga Research - 2 Jan 2020
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