• Solid earnings quarter. Corporate results in respect of the Jun 2024 quarter was a solid one, reinforcing expectations that earnings have turned the corner. More sectors exceeded expectations with five sectors above and three below (Mar 2024: three above, seven below), coupled with positive earnings revisions after FY24F and FY25F were raised 0.5% and 0.3%. We observe positive foreign direct investment (FDI) news flow with markets standing on the cusp of a rate cut cycle that will be positive for emerging market equities from expected US Dollar Index (DXY) weakness, renewed interest from foreign portfolio funds and robust domestic liquidity conditions. We reiterate our end-2024 FBM KLCI target of 1,720 pts.

• More beats this quarter. The RHB basket of stocks saw 22.1% beating expectations while 47.3% were in line (Mar 2024: 19.8% above, 45.8% in line) as the misses-to-beats ratio improved to 1.4 (Mar 2024: 1.7) – the best reading since Dec 2022. Jun 2024 quarter net profit rose 2.7% sequentially and 10.7% YoY. 1H24 net profit recorded a 17.6% YoY increase. Sectors beating expectations include oil & gas, transport, gaming, healthcare and utilities, while technology, basic materials and property missed. We also note seven recommendation upgrades (five down) and 45 target price upgrades (33 downgrades). Upgrades to earnings estimates came mainly from the utilities, banks and oil & gas, healthcare and transport sectors. These were offset by cuts in technology, gaming, rubber products and basic materials sectors. The transport sector weighting was cut to NEUTRAL after stock recommendation downgrades for Malaysia Airports. Basic materials sector is now OVERWEIGHT after the recent upgrade for Press Metal to BUY

• KLCI Stocks. Earnings revisions were also net positive for large cap stocks in the benchmark FBM KLCI up 0.4% and 0.1% for FY24 and FY25. Earnings cuts at the gaming, basic materials and consumer sectors were offset by upgrades for the utilities, banks and oil & gas sectors. Guidance at bank briefings were optimistic, headlined by robust loan demand and muted credit cost offset by margin pressures.

• Strategy. The macroeconomic backdrop remains positive, coupled with progress on domestic reform initiatives. Business and investor sentiment will tick higher with the MYR gaining ground, as the US Federal Reserve prepares to start its rate cutting cycle at this week’s Federal Open Market Committee or FOMC meeting. We expect the market to be well supported by the pooling of domestic liquidity as the MYR bottoms out to set the stage for the return of foreign portfolio funds. We are OVERWEIGHT on the property, construction, technology, healthcare, basic materials, oil & gas, utilities and rubber products sectors. No change to our end-2024 FBM KLCI target of 1,720 pts (16x target P/E) on forward FY25F earnings. Key risks include unpredictable geopolitical developments and a fallout from an escalation of the US-China trade war that could impact Malaysia.

Source: RHB Securities Research - 3 Sept 2024