Bursa Malaysia's upward trajectory likely to continue in 1Q2024, says HLIB

KUALA LUMPUR (Feb 5): Hong Leong Investment Bank (HLIB) Research said with many negative news already being priced in, it remains constructive on equities.

In a technical tracker on Monday, the research house said this is underpinned by: (i) soft landing narrative in the US amid decelerating inflation, Fed’s expected pivot and stable corporate earnings (S&P 500 CY2024/2025: 11%/9%, Factset); (ii) potential stabilisation in China’s economy in anticipation of more concrete measures from the government to rejuvenate its embattled economy and stock markets; (iii) domestic political stability paving the way to pursue greater fiscal and structural reforms, as well as continuous execution of macro blueprints launched in 2023 (ie the National Energy Transition Roadmap (NETR), New Industrial Master Plan 2030, reinvigoration of developments in Johor, subsidy rationalisations, etc); (iv) increased risk appetite by foreigners for the under owned Bursa Malaysia (with foreign shareholding at all-time low of 19.5% in Dec 2023); (v) improved core corporate earnings outlook (CY2023: - 0.3%, CY2024: +8.2%), anchored primarily by utilities, banks and plantation amid multiple tailwinds from favourable policy, tourism, consumption and currency; and (vi) the “China+One” strategy as global manufacturers trim their dependence on China and reconfigure their supply chains, which in turn will provide trade and investment opportunities for the Asean region (including Malaysia).

HLIB said the downside risks to its call could arise from (i) new commodity and supply disruptions following renewed geopolitical tensions, especially in the Middle East. Shipping costs between Asia and Europe have increased markedly, as Red Sea attacks reroute cargoes around Africa; (ii) core inflation could prove more persistent and pushback on the timing of Fed’s pivot; (iii) a slower pickup in China’s economy; (iv) heightened US-China tensions; and (iv) renewed sell-off in the ringgit (vs US dollar).

HLIB said current oversold and undemanding KLCI’s CY2024 valuation at 13.6x P/E (slightly below -1SD vs 10Y mean), a decent 4.1% CY2204E DY and all-time low foreign shareholding (end-Dec: 19.5%) would help to cushion any sharp correction.

“Overall, we take a modest upside bias view to the market with our 2024 KLCI target at 1,550, derived from 15.2x PE (-0.75SD 5Y) tagged to CY24 EPS,” it said.

HLIB said its stock picks in February include: (1) SCGM Bhd (promising cable demand from the public and private sectors coupled with margin expansion); (2) MN Holdings Bhd (bright outlook within the data centre industry and power infrastructure anchored by the NETR and TNB’s capex under RP3 & RP4, as well as Corporate Green Power Program (CGPP); (3) MAG Holdings Bhd (well-positioned to capitalise on the sustainable seafood demand in China, as well as the ready-to-eat (RTE) and ready-to-cook (RTC) shrimp products); (4) YTL Power International Bhd (multi-year earnings growth from its data centre foray, a turnaround for Wessex Water and the earnings sustainability of PowerSeraya); (5) AEON Co (M) Bhd (capitalise on the expected turnaround in its Property Management Services and retailing divisions); (6) Focus Point Holdings Bhd (both optical and F&B segments are poised to continue their growth trajectories with the group’s brand equity and popularity of Komugi (a premium Japanese bakery) products); (7) Icon Offshore Bhd (attractive valuations at 8x FY25f P/E vs OGSE’s 12x P/E, supported by a significant upswing in the FY2023-FY2025 EPS CAGR of 109% amid an impending renewal of 11 out of 18 OSVs with the latest daily charter rates); (8) Perdana Petroleum Bhd (a turnaround play and a proxy to the elevated O&G activities benefitting its OSV division); (9) Capital A Bhd (a direct proxy to the buoyant air travel demand recovery and awaiting the impending upliftment of its PN17 status); (10) Teo Seng Capital Bhd (solid near term earnings momentum will sustain into the next few quarters, underpinned by higher production capacity for eggs, recognition of subsidies for eggs, and healthy growth prospects for animal health products.“Over the longer term, we believe egg prices will stay high even post price ceiling and subsidy removal); and (11) UmediC Group Bhd (promising growth trajectory of its manufacturing division post-expansion, as well as its advantageous position to leverage on the government's pledge to raise public healthcare expenditure to 5% of GDP).