PETALING JAYA: Most sectors on Bursa Malaysia are likely to see double-digit earnings growth this year, lending further support for the FBM KLCI to breach the 1,800-point level by year-end as market optimism improves.
This will mark a sharp reversal from corporate Malaysia’s performance last year, where the revenues of most sectors suffered a double-digit plunge following the Covid-19 pandemic.
During a briefing yesterday, Maybank Kim Eng regional head of equity research Anand Pathmakanthan said the top three performers this year would be gloves, property development and healthcare segments, with an estimated earnings growth of 120.2%, 87.6% and 61.3% respectively.
However, the aviation, shipping and non-bank financials are projected to face declining earnings.
Maybank Kim Eng is bullish on the mid-cap financials and banking, utilities, healthcare and gloves, automotive, large-cap oil and gas, construction, plantation and technology stocks.
On the contrary, it was “underweight” on aviation and mid-cap oil and gas counters.
Particularly on the glove manufacturers, Anand recommended investors to hold “some glove stocks” in their portfolio.
Within the segment, Maybank Kim Eng’s preferred pick was Hartalega Holdings Bhd.
“We don’t expect glove demand to fall dramatically, if at all. We think the demand for gloves will remain strong. We are a bit more cautious on the supply as there’s a lot of supply coming in 2022 not just from Malaysia, but also China.
“That would probably have some pressure on the average selling prices (ASPs), but having said that, 2021 is going to be a fantastic year for the glove stocks.
“ASPs are still moving up, waiting time is still 12 to 15 months in terms of order backlog. So, we are quite confident in our earnings numbers, ” said Anand.
It is noteworthy that glove stocks have underperformed since November 2020 as vaccine makers announced high-efficacy rates and more countries commenced their mass inoculation programmes.
Anand, however, believed that investor attention on glove stocks would return, in the event there is any negative news flow in terms of vaccine effectiveness.
“It will be a very natural switch back to gloves if people think lockdowns will go on much longer than expected, ” he said.
Maybank Kim Eng forecast the FBM KLCI to hit 1,830 points by end-2021, supported by a “Goldilocks” combination of sustained fiscal and monetary stimulus as earnings growth recovers.
Since the Covid-19 outbreak, the government has announced five rounds of stimulus packages totalling RM320bil, not inclusive of the RM322.5bil allocation under Budget 2021.
On the monetary front, Bank Negara has slashed the overnight policy rate by 125 basis points to 1.75% since last year.
Apart from the recovering commodity prices, Anand expected the stock market to also benefit from the projected increase in yield for government bonds this year.
“Due to the government’s big budget deficit, a lot of government debt will be issued this year.
“At the same time, the Employees Provident Fund and the Retirement Fund Inc have much less firepower to absorb or buy the government debt. Last year, thanks to the Statutory Reserve Requirement cuts, banks had additional liquidity to buy the bonds. There is no such thing this year.
“We think that government bond yields would start to move up this year, no longer going down like in the last few years.
“That makes stocks more attractive, ” he said.
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