KLCI poised to retest 1,830 by year-end on earnings, economic recovery

Despite the cancellation of the HSR project, prospects for the construction sector remains solid, says researcher


THE benchmark FTSE Bursa Malaysia KLCI is expected to retest the 1,830 points by the end of this year, supported by earnings recovery in certain sectors.

Maybank Kim Eng Malaysia head of regional equity research Anand Pathmakanthan is looking at a sharp recovery of about 45% earnings growth year-on-year from a contraction of 11% in 2020.

“It will be supported by specific sectors that will continue to do quite well, like the glove industry,” he said in Maybank Investment Bank Bhd’s (Maybank IB) 2021 Malaysia Outlook virtual event yesterday.

Pathmakanthan expects a strong recovery this year in the gaming, financial, plantation and oil and gas (O&G) sectors.

He added that despite the cancellation of Kuala Lumpur-Singapore high-speed rail (HSR) project, the prospects for the construction sector remains solid, attributed to other mega projects underway such as the Light Rail Transit Line 3, mass rapid transit projects, as well as the embarking of the Penang Transport Master Plan.

“The government’s fiscal stimulus will stimulate the economy to reach GDP growth target in 2021.

“In that stimulus package, it helps earnings outlook for the economy as a whole and most specific sectors such as construction,” he said.

Maybank Kim Eng has an ‘Overweight’ call on mid-cap financials, utilities, healthcare, automotive; and large-cap O&G, construction, plantation and technology sectors.

The broker recommended ‘Buy’ on national utility provider Tenaga Nasional Bhd, Top Glove Corp Bhd, Sunway Bhd and Gamuda Bhd, among others under its large-cap segment.

For the mid-small cap segment, Maybank IB named KPJ Healthcare Bhd, SP Setia Bhd and Allianz Malaysia Bhd to ‘Buy’, but it remains ‘Neutral’ on stocks relating to retails, property, telecommunications and media.

The broker has an ‘Underweight’ rating on aviation and the mid-cap O&G stocks.

Maybank IB Research chief economist Suhaimi Ilias said Malaysia’s economy is expected to post an economic growth of 5.1% this year compared to an estimated contraction of 5.4% in 2020.

However, he said the third wave of Covid-19 infections, which has caused a spike in cases since October last year, would continue to drag the economy until the international travel ban is lifted.

“We have seen the plans of Singapore and Hong Kong to open their travel bubble last year, but it has been suspended due to the Covid-19 spike,” he said in a virtual media briefing on Maybank IB’s 2021 Malaysia Outlook yesterday.

Last October, Suhaimi said the third quarter of 2020 (3Q20) GDP will shrink by a 3.5% pending releases of more key economic indicators for September 2020.

However, in November, Bank Negara Malaysia announced that GDP shrank by 2.7% in 3Q20 compared to a sharper contraction of 17.1% in 2Q20 as private consumption recovered significantly.

“There is also indication that the 4Q20 GDP will post a shallower contraction, but the road to recovery is still uneven,” he added.

Suhaimi said although governments globally still enforce close borders, the third wave infections are more severe compared to before.

“So, mobility is affected,” he said.

Suhaimi also foresees the ringgit to retest RM3.90 against the US dollar, ahead of softer US market outlook, besides some other wildcards including the US-China trade tension.

He added that Malaysia needs stronger policies for investment incentives amid the pandemic to attract foreign direct investments (FDIs) into the country.

“With the 12th Malaysia Plan delayed to March, investors would adopt a wait-and-see attitude while waiting for more clarity in terms of policy. As we see, the 2021 budget has incentive for FDIs with high value,” he said.

Suhaimi said the country’s economy will also be highly stimulated with the availability of Covid-19 vaccines.

“The vaccine itself is a stimulus, and by achieving herd immunity, the economy can be reopened,” he said, adding that the government gunning for 80% of the population to be vaccinated is a good indicator for the economy to rebound.