High-yielding theme to continue in H2

03 July 2019

Source: The Sun


Key uncertainties stemming from US-China trade war, Brexit and Malaysia’s potential removal from World Govt Bond Index likely to persist: HLIB

PETALING JAYA: With uncertainties continuing into the second half of the year (2H19) along with lingering dovish sentiments, HLIB Research believes that high-yielding plays will remain in flavour.

“In this regard, we like Malayan Banking Bhd (large cap liquid yield) and Axis Real Estate Investment Trust (syariah REIT). We also see signs of a resuscitation of pump priming via the revival of several mega projects and favour pure construction plays like Sunway Construction Group Bhd,“ HLIB said in a report yesterday.

It said the impending commissioning of Rapid by end-2019 should be beneficial for Chemical Company of Malaysia Bhd (supply of caustic soda) and Dialog Group Bhd (entrenched Pengerang beneficiary).

“We are positive on the growing trend of cashless payment in which we highlight Revenue Group Bhd (main market transfer is another catalyst). Lastly, we reckon that the turnaround of Proton is real and sustainable, with DRB-Hicom Bhd as the direct beneficiary.

Our other top picks include AirAsia Group Bhd, Bursa Malaysia Bhd and Sunway Bhd,“ added HLIB.

The research house said key uncertainties stemming from the USChina trade war, Brexit and Malaysia’s potential removal from the World Government Bond Index will likely persist into 2H19.

“We project flattish earnings for 2019 (+0.7%) and 4.6% for 2020, below its postglobal financial crisis compound annual growth rate of 5%. Our KLCI target of 1,700 is based on 15.6 times price-to-earnings.”

Meanwhile, Kenanga Research said it prefers to adopt a “buy on weakness” approach within the index range of 1,635 to 1,595 points.

“Based on our investment strategy, we have selected Alliance Bank Malaysia Bhd, CIMB Group Holdings Bhd, D&O Green Technologies Bhd, Hartalega Holdings Bhd, Kossan Rubber Industries Bhd, MBM Resources Bhd, Mynews Holdings Bhd, Pantech Group Holdings Bhd, Power Root Bhd and Sapura Energy Bhd as our 3Q19 top picks.”

The research house said fundamentally, the FY19/FY20 earnings growth rates for FBMKLCI remain uninspiring at 14.7%/3.6% (from 17.6%/2.4% in the previous quarter).

“Post results and housekeeping in our earnings numbers and target prices, we have fine-tuned our end- 2019 index target to 1,745 points (from 1,750 points previously), representing FY19/FY20 price-toearnings ratio of 19 times/18 times.”

HLIB Research maintained its 2019 growth domestic product growth forecast of 4.5%, which is expected to be supported by increase in the commodity sector (agriculture and mining) due to the low base effect, but will be offset by moderation across manufacturing and services due to global slowdown and domestic constraints.

“While Bank Negara Malaysia is expected to maintain the overnight policy rate at 3% for the rest of the year, we do not preclude a possibility of a rate cut should the global scene deteriorate further, in an environment of low inflation and high risk aversion.”

It downgraded its inflation forecast to 1% (from +1.5% yearon-year) following delay in implementation of petrol price subsidy and weak food prices.

“In our view, Malaysia remains in a tough spot during its transition phase, as it walks a tight rope, balancing between growth and fiscal prudence against an uncertain external backdrop,“ said HLIB.