PETALING JAYA: The country is slowly regaining macro footing as indicators such as trade, money supply, credit and industrial production gains, said CLSA in a report.
This has prompted a recovery in stock market sentiment and the ringgit.
It noted that the FTSE Bursa Malaysia KL Composite Index has rallied some 9% in the year-to-date, and now commands a 15.8 times forward 2018 price to earnings ratio.
“While room for further market multiple re-rating will taper, focus will be on stocks with clear growth paths.
“First quarter results will be eagerly anticipated and barring higher costs chiefly from fuel, business activity should improve helped in part by better monetary aggregates,” CLSA said in the report
It noted that the ringgit has shown some form of life of late and investors have finally taken the plunge to invest into Malaysia after some years of absence.
This decision is supported by sound macroeconomic figures of a 4.8% GDP growth, sustained monetary aggregate recovery (M1 +9.2% in March), a continued rebound in credit growth (6.0% in March) and better exports (67% of GDP), CLSA said.
Meanwhile, they are also convinced that the worst is over with clients from the West were more focused on longer term (over two-three years) structural stories, which included China’s One Belt, One Road (OBOR) initiative in Malaysia.
It noted that China’s investments into Malaysia had increased, and now made up around 40% of total foreign direct investment flows into Malaysia.
Given that Malaysia’s public debt levels are high at 53.5% to GDP, potential funding delays have been the key risk for project rollouts.
“Stocks which were most discussed were Genting Malaysia Bhd and Genting Bhd through its new multi-year revenue cycle from a newly refurbished Genting Highlands, Malaysia Aiports Holdings Bhd (MAHB) through the expedient arrivals of Chinese tourists, IJM Corp Bhd through its Chinese joint venture in port and industrial expansion, and Dialog Group Bhd as the imminent impact of the Refinery and Petrochemical Integrated Development Project unfolds,” the research house said.
It noted that there were also more specific discussions on return on equity potential in Malayan Banking Bhd and CIMB Group Holdings Bhd, which are still trading at 0.7 times and 0.8 times standard deviation below their five-year mean price to book value.
CLSA said with the reduced election noise derailing 2017 macro recovery, a sustained re-rating is likely in MAHB, CIMB, Maybank, Genting Malaysia and Genting Bhd given earnings growth momentum.
“Quality names like IJM, Westports Holdings Bhd and Dialog while they were facing some profitability issues, have good prospects given strategic assets. Small-cap ideas that piqued interest were My E.G. Services Bhd, AirAsia Bhd, Alliance Financial Group Bhd , Padini Holdings Bhd and TIME Dotcom Bhd,” CLSA said.
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