Domestic economic conditions are set to improve substantially from 2QCY21 onwards, setting the stage for a strong 49% rebound in the FBMKLCI’s FY21E EPS. For sure, inflation is rising but fears that central banks will need to tighten monetary conditions soon are misplaced. The projected global GDP recovery of 5.5% in 2021 from -3.5% in 2020 bodes well for Malaysia’s exports, benefiting the tech sector especially, and while selected consumer and tourism-related sectors have already moved on the economic reopening theme, there remain undervalued laggards in the REITs and Hospitality space. Banks are seen benefitting from the steepening of the yield curve amidst stabilising OPR, improving credit costs and stronger loans growth. The backdrop of robust corporate earnings and economic recovery and easy monetary conditions that are far from tightening lead us to value the FBMKLCI at 15.6x FY22E EPS giving a year-end target of 1,745. We have OVERWEIGHT call on: Automotive, Banks, Building Materials, Construction, Gaming, REITS, Rubber Gloves, Technology and Utilities. Top picks for 2QCY21 are: AXREIT (OP, TP: RM2.25), GAMUDA (OP, TP: RM4.17), GENTING (OP, TP: RM5.97), INARI (OP, TP: RM4.00), KLCC (OP, TP: RM7.55), MAYBANK (OP, TP: RM9.10), PTRANS (OP, TP: RM1.15), RHBBANK (OP, TP: RM6.40), TENAGA (OP, TP: RM12.72) and TGUAN (OP, TP: RM3.00).
The economic landscape looks more promising as corporate earnings head back to pre-Covid-19 levels: Barring the occasional disruption to vaccinations caused by precautionary measures taken due to post-inoculation side effects, infection rates are generally falling worldwide. There are no less than five vaccines that are being widely administered globally and so having just one or two being held back pending probes on safety will only temporarily slow, and not stop their deployment, in our view. With Malaysia’s 2020 GDP contraction of 5.6% behind us, the economy entered 2021 struggling to overcome the impact of MCO 2.0 due to spikes in daily new cases. This portends for a weak 1QCY21 while 4QCY20 results season was mildly positive, beating low expectations. However, by midMarch, daily new cases fell to less than 1,500 and it was clear that the 5,725 recorded on 29th January was likely the peak. And globally, some lockdowns and deployment of effective vaccines in the developed markets are starting to work, as can be seen in daily cases receding (see charts 1-4 below). And it should continue doing so as the northern hemisphere heads into warmer months.
Source: Kenanga Research - 1 Apr 2021
Created by kiasutrader | Aug 26, 2024
Created by kiasutrader | Aug 26, 2024