Research houses maintain year-end KLCI target, ranging 1,500 to 1,610 points

AT least four research houses have maintained their year-end target for the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) after pouring over the numbers for the second quarter performance.

The four equity research houses who released reports this morning kept their year-end targets unchanged between 1,500 points and 1,610 points.

The KLCI was up 2.1% to 1,465.55 points in early trading today’s (Sept 4).

The lower end of the target came from RHB Research at 1,500 points. MIDF Research and Kenanga Research have kept it at 1,540, while CGS-CIMB Research is on the higher side at 1,610 points.

This works out to an average of 1,547.5 points, or 5.59% higher than its current level.

In its report, CGS-CIMB Research said it was encouraged to note the pick-up in momentum across the KL Finance, Construction and Property Indices since early June and strong gains in conglomerates Sunway Bhd and YTL Corp Bhd.

Nevertheless, it noted that the stocks were still below January 2018 levels, essentially looking at prior to the 2018 General Election and Covid-19.

Its top sector picks remained domestic-focused banks, construction and materials, real estate, and REITs while conglomerates were also deemed attractive.

It saw selective Telecom stocks like Telekom Malaysia Bhd and CelcomDigi Bhd and Genting Malaysia Bhd as attractive laggards, while any Tenaga Nasional Bhd (TNB) dip post the poor 2Q23 result as a good buying opportunity.

On its part, RHB Research said while tracking data shows that corporate earnings for the Jun 2023 quarter broadly met expectations, the reality was more sobering.

It said seven out of 18 sectors booked disappointing numbers, and there were downward revisions made on the back of soft toplines and even weaker bottomlines.

“The fragility of corporate earnings will limit the fundamental upside for equities, so we maintain our end-2023 FBM KLCI target at 1,500pts,” it said. The research house tracks 148 counters, with 86 of them having a ‘buy’ call, 52 ‘neutral’ and 10 ‘sell’.

Moving forward, it said key risks for equities include a weak MYR/USD rate, the slower than-expected pace of economic recovery in China, lacklustre corporate profitability, and the continued stability of the Federal Government.

“While a core defensive stance is still preferred, market weakness should be seen as opportunities to gradually deploy cash hoards to add to equity positions,” it said.

It is ‘overweight’ on the bank, oil & gas (O&G), utilities, basic materials, nonbank financial institutions (NBFI), healthcare and property sectors.

Kenanga Research noted that the FBM KLCI component stocks reported 2QFY213 results were more in-line with its expectations, after a highly disappointing 1Q.

“With the state elections and 2QCY23 corporate earnings reports now out of the way, we believe investors will shift their attention back to key global macro issues, particularly: 1. A potential pause in rate hikes and a more dovish tone by the Fed at the Federal Open Market Committee (FOMC) meeting on 19-20 September 2023,” it said.

In its report, MIDF Research said 13% of stocks under its coverage reported higher than expected earnings while 36% posted earnings that were lower than expected versus 51% which came within expectations.

It said it is maintaining both its end-2023 FBM KLCI and FBM70 targets at 1,540 and 14,500 points, respectively due to increasingly positive market sentiment engendered by the likely cessation of further Fed rate hike and supported by still attractive FBM KLCI and undemanding FBM70 valuations. – TMR