PETALING JAYA: Despite the recent weakness amid domestic and global headwinds, AmBank Research said the worst is over for the local stock market and it is poised for a major comeback.
The research house said it is unperturbed by the recent weakness in the local market and has maintained its year-end FBM KLCI target of 1,820 points, driven by four major positive catalysts.
Nonetheless, the local bourse remained under pressure today due to escalating US-China trade tension with the KLCI declining 9.18 points or 0.57% to 1,601.09 points. There were a total of 815 losers against 140 gainers.
On the currency market, the ringgit depreciated 0.2% to 4.1660 against US dollar as at 5pm today.
In its report, AmBank Research said the proposed merger between telco giants Axiata Group Bhd and Digi.Com Bhd has been very well received by the market, as reflected in the sharp appreciation in the share prices of both companies after the news.
“Both Axiata and Digi.Com are component stocks of the FBM KLCI, carrying weighting of 4% and 3.4% respectively. In addition, by swapping its 37% stake in Axiata into a smaller 16% stake in the enlarged merged entity (which should command better share liquidity), it allows Khazanah Nasional Bhd to pursue its exit from the telco sector with less disruption to the overall market,” it said.
Secondly, the initial public offering (IPO) market in Malaysia will be revived with the listing of poultry player Leong Hup International Bhd on Thursday, which is the largest IPO in Malaysia since the listing of Lotte Chemical Titan Holding Bhd in July 2017.
The third catalyst, it said, is the synchronised recovery of the global markets last Friday as investors now hold the view that a full-blown US-China trade war will be avoided.
This is due to Beijing’s decision to stay the course with regard to the trade negotiation despite repeated provocations from US President Donald Trump.
The fourth catalyst is Pakatan Harapan’s landslide victory in the Sandakan parliamentary by-election last Saturday. AmBank Research said this eases concerns about the ruling coalition losing support from the people, which would prevent it from carrying out its reform agenda.
“Last traded at 1,610 points (on Friday), the FBM KLCI traded at about 16.8 times our projected 2019 earnings. This is at more than one time multiple discount to its five-year historical average of 17.9 times.
“We maintain our end-2019 FBM KLCI target of 1,820 points, which was initially (in December 2018) based on 18.5 times our earnings forecast, but has since risen to about 19 times as we trim our 2019 earnings growth projection to 2.7% from 4%,” it said.
Next year, at 1,820 points, the FBM KLCI will be trading at only 17.9 times AmBank Research’s 2020 earnings forecast, which is backed by a 6.3% earnings growth and is in line with its historical average.
AmBank Research’s top picks are Malayan Banking, Petronas Chemicals Group, RHB Bank, Dialog Group, Top Glove Corp, Serba Dinamik Holdings, Bermaz Auto, Malaysian Pacific Industries, Malayan Flour Mills and Berjaya Food.
Source: The Sun Daily