Research house picks four sectors as best performers in 2019 first half

20 Dec 2018

Source:The Star

PETALING JAYA: CIMB Research picked the rubber gloves, oil and gas (O&G), healthcare and insurance sectors as the potential four top performers in the first half of 2019 (1H19), amid its expectation that corporate earnings in Malaysia will shift to a lower base next year.

In its 2019 outlook report, the research house said the domestic rubber gloves sector will likely benefit from expansion plans and improved demand for gloves. 

Meanwhile, the O&G industry is expected to offer good upside potential either due to higher crude oil prices via a stronger order book or expanion-driven earnings growth.

"We also like the healthcare sector for its defensive earnings quality and bright long-term growth prospects, and the insurance sector for its relatively strong earnings growth and high dividend yields," it said, adding that it was underweight on the building materials and construction sectors in 2019.

Stocks-wise, CIMB Research's top three picks for 2019 are Dialog Group Bhd, Malaysian Pacific Industries Bhd and Westports Holdings Bhd.

Corporate earnings, which have been disappointing over the course of 2018, will continue to be a key concern for the market next year, as Malaysian corporates adjust to the country's new policy landscape, trade risks and slower global growth.

"We project potential earnings risks in 2019 due to a likely weaker topline growth, upturn in loan loss provisioning for banks, as well as' on-going reform policies and plans by the government to review and renegotiate contracts entered into by the previous government amounting to RM19bil," the research house said.

CIMB Research foresees "pockets of potential earnings risks" for the banking, plantation and utility players in 2019. Given the fact that stocks related to these three sectors account for around 58.5% of the FBM KLCI weightage, the research house cautioned that any unpleasant surprises to these sectors' earnings could move the index negatively.

The potential earnings risks for the domestic banks are weak topline growth due to pressure from margin erosion and weak fee income expansion as well as the upturn in loan loss provisioning.

As for the utility plays, earnings risks could come from the government's new reform programme for the local energy sector, Malaysia Energy Supply Industry 2.0. The programme will be carried out by the re-activated agency, Malaysia Programme Office for Power Electricity Reform for at least three years.