Kenanga Research & Investment

4QCY23 Investment Strategy - Staying Ahead of Policy Moves

Publish date: Mon, 02 Oct 2023, 09:25 AM

Executive Summary

• With the state elections done and dusted, we believe the market will be watching closely the policy responses and administrative moves to various challenges in Malaysia, the US and China.

• Locally, we single out four key policy initiatives that will have more quantifiable bearing on our investment strategy, i.e. targeted fuel subsidy, progressive wage model, the roll-out of public infrastructure projects, and sustainability & renewable energy (RE).

• While the government’s narrative has thus far pointed to only cutting the T20 group off from fuel subsidy, there is a risk that the M40 group may not be completely spared.

• We believe progressive wage model serves as a timely wakeup call to businesses to move away from low value-adding and labour-intensive manufacturing, into the production of higher-value goods and services.

• The newly-announced Mid-term Review for the 12th Malaysia Plan (12MP) projects an annual gross development expenditure of RM264.4b in 2023-2025, translating to an annual allocation of RM88.1b which is 23%, 37% and 77% higher than the amount spent in 2022, 2021 and the average during the 11th Malaysia Plan (11MP).

• The prospects of the RE sector in Malaysia is strong, backed by the recently announced National Energy Transition Roadmap (NETR) that lays down Malaysia’s path to net zero by 2050, with a key initiative being the transition to RE making up 70% of total capacity mix by the same year, and the recent lifting of the RE export ban.

• We believe it will be safe to assume that the Fed Funds rate has either peaked or will soon peak, setting the stage for investors to position for a recovery in the equity market, based on a soft lending scenario in the US economy and in the absence of an “oil shock”.

• We take comfort in the way the Chinese government has moved in swiftly to contain the shadow banking crisis centered around Zhongrong International Trust Co Ltd (Zhongrong), and we hold the view that it is very likely to lend some form of support to the troubled real estate behemoth Country Garden as well, if need be.

• We fine-tune down our end-2023 FBM KLCI target to 1,520 pts (from 1,540 pts) based on 16.5x CY23F earnings (-4.0%). We project FBM KLCI earnings to rebound by 10.5% in CY24.

• We pick banks for proxy to a healthier economy over the long term with stronger fiscal sustainability backed by targeted fuel subsidy. We are now even more upbeat on contractors given the impending roll-out of mega projects such as MRT3, Bayan Lepas LRT and various large-scale flood mitigation projects.

• We like telcos given their earnings resilience against targeted fuel subsidy, and consumer staples players and automotive makers/distributors focusing on the affordable segment, given spending power of their target customers, i.e. the B40 group, will remain intact as the group will still fully enjoy fuel subsidy under targeted fuel subsidy.

• Our top conventional picks are CIMB, CDB, AMBANK, GAMUDA, IJM, ABMB, KPJ, SUNCON, DLADY and MBMR.

• Our top Shariah picks are CDB, IHH, MAXIS, GAMUDA, F&N, IJM, KPJ, SUNCON, DLADY and MBMR.

• Our top small-cap picks are KOTRA, TGUAN, SAMAIDEN, UZMA, ULICORP and HPPHB.

Source: Kenanga Research - 2 Oct 2023

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