KUALA LUMPUR, June 24 — Permodalan Nasional Bhd’s (PNB) assets under management (AUM) has breached the RM300 billion mark for the first time, recording RM301.4 billion in the first half of 2019, says Group Chairman Tan Sri Dr Zeti Aziz. It is an…
KUALA LUMPUR: The Malaysian equity market is seeing more expensive valuations and slower earnings growth compared with its regional peers, according to HSBC Private Banking managing director and chief market strategist for Asia, Fan Cheuk Wan.
“Within our Asia equity portfolio, we’re still cautious on the Malaysian equity market mainly because of its expensive valuations versus the other cheaper regional peers. The earnings growth forecast for the Malaysian equity market still remains at single-digit, lagging behind other higher growth equity markets that we favour, such as China.
“For Malaysia, we forecast single-digit earnings growth but with the valuation premiums versus the regional’s average, it would cap the upside potential of the Malaysian equity market,” she told a press conference on the HSBC Private Banking 2019 2H Investment Outlook in Asia today.
Reflecting on Asian equities, it maintains a mild overweight position on China and Singapore. Fan said Singapore is the cheapest market in Asean and it has the lowest price-to-earnings and the highest dividend yield.
“Based on our year-end forecast, we still expect the FBM KLCI to come in at 1,740 points this year, some modest upside potential because the economy still remains resilient and there will be modest earnings growth for this year. In terms of the upside potential, there are cheaper markets that can deliver more upside,” elaborated Fan.
Nevertheless, HSBC Private Banking chief market strategist for Southeast Asia James Cheo still expects a 3-4% upside in the equity market.
“How we want to play it is to look at the domestic sectors. The consumption and infrastructure plays are where we think the opportunities are, and how it pans out could be end of this year or next year,” Cheo said.
On the ringgit, he said in the near term, there could be a risk-off where there will be more demand for the dollar given the uncertain environment.
“The domestic economy in Malaysia is still resilient so it reduces the downside for the ringgit. The ringgit could still be fairly resilient against the dollar,” said Cheo, adding that its year-end target for the ringgit is RM4.30 against the US dollar.
On Malaysia proposing a new currency based on gold, Cheo said it is an interesting idea but noted that there are trade-offs and that it should be thoroughly considered.
“It’s an international monetary system and just can’t be implemented on a single country. It requires a global consensus. Given how things are, it looks like things are more bilateral nowadays.
”We have been on a fiat currency model for many years and it has served us well. Our money supply has been growing significantly,” said Cheo.
KUALA LUMPUR, June 1 — Bursa Malaysia is likely to continue last week’s upswing, driven by safe haven play as the global markets fall on Trump anti-trade risk-off scenario and slower global economic growth. Phillip Capital Management,…
PETALING JAYA: Kenanga Research has cut its crude palm oil (CPO) price forecast for 2019-2020 to RM2,000-RM2,200 from RM2,400-RM2,200 per tonne.
This is premised on the palm-oil biodiesel ban from the European Union (EU), a potential CPO inventory pickup in the second half of the year and mounting trade war tensions depressing CPO prices.
Following the revision, the research house slashed planters’ earnings by 6-97% for FY19 and 7-79% for FY20E with pure upstream players such as IJM Plantations Bhd and Hap Seng Plantations Holdings Bhd taking bigger hits.
“We believe planters’ earnings will hit a rough patch in coming quarters with CPO prices hovering around current levels, which will likely overshadow any production pickup in the second half of 2019.”
Kenanga said while biodiesel mandates seem to be panning out well (expected to absorb 13% of CPO production in Indonesia and 4% in Malaysia), the intensifying US-China trade war tensions are likely to discourage soybean oil prices like what happened last year.
“In our opinion, this will dwarf any positive trade/demand impact on CPO and keep its prices under pressure in the near term, as the two commodities are close substitutes with their prices highly correlated (>0.90).
“Coupled with a potential inventory pickup in the second half of 2019 (to 3.0-3.5 million tonnes levels), we believe the possibility of a strong CPO price recovery in the near term can be practically ruled out, leaving 2019 an unexciting year for most planters.”
Nevertheless, it said should the Chinese and/or biodiesel demand be stronger-than-expected, resulting in falling stockpiles in the second half and a sharp recovery in CPO prices, it would review the sector call and target prices of planters under its coverage.
Kenanga downgraded the plantation sector from “neutral” to “underweight”, with only Ta Ann Holdings Bhd set to outperform due to its core net profit compound annual growth rate of 12.8% driven by improved log production, profitable status and attractive 4% dividend yield.
The research house was previously hopeful of a handsome CPO price recovery by June 2019 as stockpiles fall and demand from China picks up.
“However, despite the positives nicely falling into place, negative news flows vis-à-vis palm-oil biodiesel ban from the Europe has proven to be a major killjoy.”
“As we move closer to the second half, chances of CPO price reaching our 2019 target of RM2,400 per tonne are becoming next to zero.”
PETALING JAYA: Hong Leong Investment Bank (HLIB) Research said its strategy to seek high dividend yielders remains unchanged and the recent market sell-down further solidifies the need to stay defensive.
The FBM KLCI has skidded to its lowest level since late-2016 to close at 1,622.07 points last Friday following news of Malaysia’s possible removal from the World Government Bond Index (WGBI).
Besides high yielders, the research house said, investors can look out for selective exporters (weakening ringgit), while those looking for rebound plays can consider “beta oversold” stocks.
“For the yield angle, we like selective REITs (IGB REIT and MQ REIT), Maybank for large cap liquid yield, BAuto (strong earnings growth), Taliworks (resolution of Splash water deal) and LiiHen (export play).
“Also, our earlier view for a sequentially weaker ringgit in Q2 vs Q1 remains unchanged (-1.4% thus far into Q2). In this regard, we like Top Glove and recently also upgraded our rating on Hartalega to buy.”
HLIB Research said the only slight change to its second quarter 2019 (Q2’19) strategy is that it is turning warmer on construction in view of pump-priming resumption.
“While the sector remains a neutral (albeit with a positive bias), we think there could be plays on laggards such as Kim Lun and Hock Seng Lee.”
In light of the market weakness, the research house screened its coverage to identify which socks have been oversold year-to-date versus the FBM KLCI on a beta adjusted basis for possible bottom nibbling ideas.
“Stocks that have been oversold by more than 5% on a beta adjusted basis that we have buy ratings include Hartalega (oversold by -18.5%), Pharmaniaga (-17.8%), Top Glove (-17.6%), IOIPG (-10.2%), AirAsia (-8.8%) and Homeritz (-5.6%).”
HLIB Research is maintaining the FBM KLCI earnings growth forecast of 2.1% for 2019 and 4.5% for 2020, while the FBM KLCI target is 1,710 points.
Meanwhile, the research house said the emphasis by the government on pump priming the country’s economy is welcome news.
“While economic expectations have been lowered, the silver lining is that pump priming is being resuscitated.”
After renegotiations, major infrastructure projects, MRT valued at RM30 billion, LRT3 at RM16 billion are expected to resume construction by the middle of this year and, most recently, the East Coast Rail Linkhas been resuscitated at a lower price of RM44 billion and a higher local content of 40%, it noted.
PETALING JAYA: The dovish tilt by major central banks as well as Bank Negara Malaysia (BNM) may continue, potentially stirring interest in high dividend yielders, according to HLIB Research.
“For equities, we expect high dividend yielding stocks to garner interest on back of dovish expectations. In this regard, we like selective real estate investment trusts (REITs) like IGB REIT and MRCB-Quill REIT, Bermaz Auto Bhd (BAuto), Taliworks Corp Bhd and Lii Hen Industries Bhd. For liquid large cap yield, we highlight Malayan Banking Bhd (Maybank) (6.4-6.6%),” it said in a note today.
Year-to-date, the 10-year Malaysian Government Securities yield has fallen 32bps to 3.75%.
HLIB Research said external uncertainties will persist into Q2 and as such, opined that BNM will continue with its dovish bias for the upcoming Monetary Policy Committee meeting in May 6-7. It does not anticipate an overnight policy rate cut in 2019.
“Consequently, we reckon there could be a possible sequential weakening of the ringgit in Q2 and export plays could return; we like Top Glove Corp Bhd and Lii Hen (also a yield play).”
Following earnings changes, in particular the downgrade of the plantation sector to “underweight” from “neutral”, HLIB Research’s KLCI target is cut to 1,710 points from 1,750 points. It also projected KLCI earnings per share growth of 2.1% for 2019 and 4.5% for 2020.
This comes on back of lacklustre earnings outlook which is below the post global financial crisis compound annual growth rate of 6.2%.
It added that the lower gross domestic product projections by BNM reflects the challenges Malaysia faces as it walks a thin rope, balancing between growth and fiscal prudence against an uncertain external backdrop.
The research house’s top picks are Maybank, Top Glove, Sunway Bhd, IGB REIT, TIME dotCom Bhd, DRB-Hicom Bhd, BAuto, Taliworks, Frontken Corp Bhd and Lii Hen.