KUALA LUMPUR: CGS-CIMB Equities Research raised its end-2020F FBM KLCI target to 1,628, which is based on 15.4 times price-to-earnings (P/E), its earlier target of 1,520 as the ratio of outperformers improved significantly.
In its strategy report issued on Wednesday, it introduced its end-2021F KLCI target of 1,732 which is based on 16.2 times P/E.
“For our top three picks, we replace Tenaga and MPI with Telekom and Inari, while retaining Public Bank. This is in line with our stance that investors should positioned into companies that will benefit from the recovering economy as the impact of the Covid-19 outbreak eases, ” it said.
CGS-CIMB Research said its top picks now include Inari, Telekom, Malaysia Airport, Hong Leong Bank, DRB-Hicom, Axis REIT, Hap Seng Plantations, SKP Resources, LSK, Media Prima, and 7- eleven.
It removed DKSH, MPI and Petronas Gas from its top pick list.
“Of the 130 companies that we actively cover, the ratio of companies that posted results above our expectations rose to 35% in 3Q20 (2Q20: 25%), while the ratio of underperformers fell to 31% (2Q20: 36%), ” it said
The research house said key takeaways from the 3Q results season were:
1) strongest earnings revision ratio in recent history, thanks to higher ratio of overachievers in 3Q20;
2) the 102% qoq rise in corporate earnings was due to relaxation of the Movement Control Order (MCO) which led the recovery in business activities to around 70-90% of pre Covid-19 levels (ex-travel related businesses); and
3) positive on Maybank being the first bank to declare an interim dividend for 3Q20 (13.5sen)
CGS-CIMB Research said the quarterly market earnings for companies it covered grew year-on-year for the first time in eight quarters, due mainly to stronger earnings from glovemakers, technology, plantation, and electronic manufacturing services (EMS) players.
On a quarter-on-quarter basis, most posted strong earnings due to resumption of business activities following the lockdown measures in most of 2Q.
“We now expect KLCI’s 2020F core net profit to decline 14% (vs. -16% previously) as we adjust for earnings upgrades in Top Glove, Hartalega, Genting, and Petronas Chemicals.
“We expect corporate earnings to be mixed quarter-on-quarter in 4Q20F, as sequential earnings recovery would be negatively impacted by the reinstatement of the Conditional MCO (CMCO) from mid-October to early-December in major cities in the country, ” it said.
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