Kenanga Research & Investment

3QCY24 Investment Strategy - Dawn of the Laggard

kiasutrader
Publish date: Fri, 28 Jun 2024, 11:56 AM

Executive Summary

  • We maintain our end-CY24 FBM KLCI target of 1,700 pts based on 16x CY24F earnings (+16.2%). We project FBM KLCI’s earnings growth to moderate to 8.1% in CY25F.
  • On one hand, we acknowledge that the key catalyst for global markets, i.e. policy easing by central banks in advanced economies, has somewhat been watered down. During the Federal Open Market Committee (FOMC) meeting this month, the Fed raised its end-CY24 Fed Funds rate forecast to 5.1% (from 4.6% three months ago), effectively signalling only a 25-bps cut in CY24.
  • On the other hand, we also acknowledge that there could be overriding revolutionary investment themes, particularly, generative AI; and/or investors may be willing to “roll forward” their rate cut expectations, say, for another six months (instead of cutting their positions as they expect the rates to stay higher for longer).
  • Locally, we take comfort that despite a buoyant stock market, the government has remained steadfast in pursuing fiscal policy reforms. It has taken a big step forward with the removal of diesel subsidy effective 10 Jun 2024.
  • We also see local investors turning more decisive and taking the lead in buying (vs. them taking the lead from foreign investors in the past). They soak up the occasional foreign selling and as and when foreign investors return, the market’s vibrancy could only be amplified.
  • We sense exuberance in investment themes surrounding AI, data centre and Johor economic transformation. We advocate investors who are taking an immediate to shortterm view on the related utilities and property names to lock in profits. While we believe these investment themes may still have legs over the long term, investors will have to be prepared for much lower returns as the easy money has already been made upfront.
  • We see value in laggard sectors particularly telecommunications on improving clarity on the 5G Dual Network policy and the growing demand for fiber optics backhaul, network hubs, submarine cables and landings from new data centres (which we believe have not been fully priced in by the market), and financial services of which stock prices are poised for better performance when foreign investors flock back to the local stock market.
  • Despite the YTD strong outperformance, we still like: (i) the construction sector as it will be buoyed by the roll-out of mega public infrastructure projects led by the MRT3 (RM45b), on the heels of the award of the RM10b Mutiara Line of the Penang LRT and a slew of data centre building jobs, (ii) the oil & gas sector, particularly, the thriving offshore support vessel (OSV), floating production storage and offloading (FPSO) and land storage segments, and (iii) the tech sector underpinned by the recovery in the semiconductor and EMS space and ample of growth opportunities in integrated circuit (IC) design and cybersecurity.
  • Our top conventional picks are CIMB, IHH, CDB, TM, RHBBANK, GAMUDA, INARI, DIALOG, ABMB and SKPRES.
  • Our top Shariah picks are IHH, CDB, MAXIS, TM, GAMUDA, INARI, DIALOG, F&N, MBMR and SKPRES.
  • Our top small-cap picks are OPPSTAR, KAREX, TGUAN, MKH, LGMS and ENGTEX.

Source: Kenanga Research - 28 Jun 2024

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2 people like this. Showing 3 of 3 comments

calvintaneng

Post removed.Why?

2024-06-28 23:03

calvintaneng

See the time it failed and will fail to see great stocks like Jcy, Notion, Dufu , Hexcap and TSH Resources

2024-06-28 23:05

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