KUALA LUMPUR: Maybank Investment Bank Research says it continues to adopt a broadly defensive investing strategy as the equity market continues to contend with multiple external and internal earnings headwinds.
The research house cited principally continuing trade uncertainties, as well as political and policy uncertainties, but this was notwithstanding the positive macro signals.
“Our 12-month FBM KLCI target of 1,700 is based on 16 times forward price-to-earnings ratio (PER), in line with historical mean, ” it said in its latest report.
Its biggest sector “overweights” are in oil and gas, banks, real estate investment trusts(REITS) and selected consumer stocks.
For the oil and gas (O&G) sector, with Budget 2020 containing no additional demands on Petroliam Nasional Bhd’s (Petronas) cashflow (recall in 2019 Petronas was required to pay the government a special dividend of RM30bil), the national O&G corporation’s second half 2019 capex step-up is on track.
Coupled with broadly rising activity levels (ie jobs) offshore, its O&G sector analyst has been raising earnings forecasts, valuations and ratings across the O&G services value chain.
The top sector picks are Yinson Holdings Bhd (FPSOs), Dialog Group Bhd (storage), Velesto Energy Bhd (drilling), Wah Seong Corp Bhd (pipelines, fabrication) and FAVELLE FAVCO BHD (crane manufacturing).
As for banks, while the revised expectation on the overnight policy rate (OPR) is prima facie positive for the banking sector given interest rate reductions are a drag on sector NIM, its banks analyst has already factored in another OPR reduction over the next 12 months.
This is in line with the expectations of the economics team i.e. while there is near-term NIM relief from delayed OPR reduction, it does not change the long-term forecasts.
Nonetheless, indicative macro resilience bodes well for asset quality, while ample system liquidity (liquidity coverage ratio is at a generous 144%, while loan-deposit ratio is at a comfortable 88%) alleviates pressure on funding costs, especially with system loans growth remaining weak (Oct: +3.7% year-on-year).
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