‘It will be a stock picker’s market next year’

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KUCHING: The year 2015 could turn out to be a stock picker’s market for investors on Bursa Malaysia.

As a result of heightening risk-reward investing environment due to the sharp drop of crude oil price of late as well as macroeconomic headwinds ahead, analysts remain cautious for the outlook of 2015 and have mixed forecast over the FBM KLCI’s movement.

AllianceDBS Research Sdn Bhd (AllianceDBS Research) in a report said given the earnings disappointments throughout 2014 and macro headwinds ahead, the research firm has conservatively project FBM KLCI to reach 1,750 points by end of next year based on 14.5 times price-to-earnings ratio (PER) and 9.6 per cent earnings growth in 2016.

The research firm believes the trend of poor earnings and downgrades might continue moving into 2015.

AllianceDBS Research was particularly concerned that commodity prices will continue to drop, leading to further earnings cuts in the plantation and oil and gas (O&G) sectors.

It added that the banking sector was also worrisome as the sector accounts for 54.1 per cent of the research firm’s earnings growth projection for 2015.

The research firm explained that among the concerns for the banking sector include loan growth may slow further, net interest margin (NIM) may compress, cost-to-income ratio has little room to improve due to the implementation of the Goods and Services Tax (GST) and the potential rise in credit cost.

Nonetheless, AllianceDBS Research favours sectors which are resilient amid a slowdown in domestic consumption.

The research firm noted that the construction sector is poised to grow due to continued government’s spending on infrastructure projects as well as projects under the Economic Transformation Programme (ETP).

Additionally, it upgraded the glove manufacturing and technology sectors due to their export driven business models and the utilities sector as a beneficiary of the energy sector reform in Malaysia.

With a defensive strategy for 2015, the research firm is bullish on Tenaga Nasional Bhd (TNB), Petronas Gas Bhd, Gamuda Bhd, IJM Corporation Bhd, Muhibbah Engineering (M) Bhd, Hartalega Holdings Bhd, Globetronics Technology Bhd, Unisem (M) Bhd, Pantech Group Holdings Bhd and Sasbadi Holdings Bhd.

Interestingly, RHB Research Institute Sdn Bhd (RHB Research) is more optimistic about the equity market next year and said its 2015 year-end target for the FBM KLCI is 1,960 points based on PER of 16.5 times and one-year forward earnings.

The research firm believes that corporate earnings could recover in 2015 while equity valuations will improve as listed firms are going to register better earnings driven by corporates leveraging on their investments in manufacturing capacity, manpower and technology in the last two years.

RHB Research forecast earnings per share (EPS) growth for the FBM KLCI companies to reverse trend and pick up to seven per cent and 7.8 per cent for 2015 and 2016 respectively from an estimated of 0.3 per cent for 2014.

The research firm cited the government’s commitment to fiscal reform, the economy to perform better than expected and Malaysia’s capital market, being under-invested by foreign institutional investors are factors that could rekindle investor interest in the stock market.

RHB Research added it continues to witness high domestic liquidity, accommodative interest rates, a gradual improvement in the external economic environment, resilient domestic consumption to help to sustain the equity market’s valuation and drive corporate earnings higher.

It is hopeful that the weakened ringgit and the relatively low foreign ownership levels could attract investors to relook at the prospects for Bursa Malaysia next year.

Going forward, the research firm prefers companies that generate good earnings growth with strong fundamentals that creates shareholder value.

RHB Research top preferred companies for investment in 2015 are TNB, Cahya Mata Sarawak Bhd, Press Metal Bhd, Inari Amertron Bhd and AirAsia Bhd.