Executive Summary

As expected, the Pakatan Harapan (PH) and Barisan Nasional (BN) alliance managed to defend its turfs in Penang, Selangor and Negeri Sembilan while Perikatan Nasional (PN) maintained its dominance in Kedah, Kelantan and Terengganu. However, significant inroads made by PN in all three states won by the unity government were beyond expectations and could be a sentiment dampener for local equities due to growing popularity of fundamentalism that could shake the core founding principles of this nation. The outcome places the unity government in a tight spot to regain support of the masses, especially the Malays, while impeding its ability to freely pursue non-populist measures that are regarded as vital to improve the nation’s finance and long-term competitiveness. In a nutshell, the election failed to restore conviction that Malaysia’s political stability is returning and will place investors on edge until GE16. In the interim period, the efficacy of government policies will be closely monitored while gauging changes in its popular support. We are maintaining our end-2023 FBMKLCI target at 1,515 based on CY24 PER of 13x at the backdrop of possible end to interest rate hike cycle in the US and growing worries about deflation fears in China.

• We may witness immediate-term correction in the FBMKLCI this week following the conclusion of six state elections last Saturday that raised more questions than answers about the nation’s future direction. Thus, relatively defensive sectors like consumer, utilities and healthcare could come under investment radar this week but sentiment could improve later as the government unfolds more details about its short and long-term plans and implement various measures to boost domestic activities.

• We maintain Malaysia’s GDP projection of 4.2% for 2023 in view of the weakening external sector but we do expect good traction in next year’s growth (4.5% - 5.5%) based on 1) improvement in exports as key global central banks pause on interest rate hikes soon and inclined towards easing by 3Q24, and China opting for broader economic revival measures to check deflationary pressures, 2) pickup in domestic activities as government machinery gather momentum to implement long delayed big ticket infra projects and Malaysia undertakes strategic reforms to achieve the targets set forth in the Madani Economy framework, 3) greater foreign direct investments presuming no changes in some of the commitments and announcements made this year, 4) normalisation in tourist arrivals to pre-Covid era, and 5) strong labour market underpinning domestic consumption.

• With the conclusion of state elections, the focus will shift to three key events in the 2H23, which are the mid-term review of 12th Malaysia Plan (12MP), the New Industrial Master Plan and Budget 2024. Strategic policies and initiatives under these short-term and long-term plans should be in-line with the Madani Economy framework focus areas that targets economic growth, fiscal sustainability, competitiveness and regionalisation, good governance, inclusive growth, quality jobs with higher wages, equality of opportunities.

• We are inclined to maintain our end-2022 FBMKLCI target of 1,515 and propagate Buy-on-Weakness undervalued bluechips, defensive plays in the Consumer (ABLEGLOB, TP: RM1.55), (AEON, TP: RM1.69), (AMWAY, TP: RM6.30), (F&N, TP: RM29.70), (FFB, TP: RM1.70), (FOCUSP, TP: RM1.11), (LHI, TP: RM0.60), (NESTLE, TP: RM151.30), (PADINI, TP: RM5.10), (QL, TP: RM6.70), Utilities (MALAKOF, TP: RM0.78), (PETDAG, TP: RM26.70), (PETGAS, TP: RM20.60), (RANHILL, TP: RM0.67), (TENAGA, TP: RM11.80) and Healthcare (DPHARMA, TP: RM1.65), (KPJ, TP: RM1.32), (SCOMNET, TP: RM1.85), (HARTA, TP: RM2.33), (KOSSAN, TP: RM1.60) sectors, and Construction (GAMUDA, TP: RM5.03), (IJM, TP: RM1.85), (INTA, TP: RM0.28), (KERJAYA, TP: RM1.50), (TRC, TP: RM0.39), (WCT, TP: RM0.59) stocks that will benefit from greater domestic infra projects post state elections. The government’s drive on renewable energy and green projects should also benefit them apart from the Power sector and the renewable energy players. Consumer will continue to benefit from various measures to support lower-income households and bring down the cost of living. Meanwhile, investors could subject Brewery (HEIM, TP: RM31.40) and Gaming (GENTING, TP: RM5.13), (SPTOTO, TP: RM1.70) sectors to closer scrutiny due to risks of restrictive measures if PN continues to garner greater support in GE16.

Source: TA Research - 14 Aug 2023