CGS CIMB said that it has lowered its KLCI target to 1,612 points at the end of 2022F from 1,637 points, to reflect changes in KLCI constituents and our recent downgrade of Top Glove’s earnings.
It said that post revision, it projects KLCI earnings to rise 39% in 2021F before declining by 4.8% in CY22F. with its preferred sectors are banks, technology, gaming, petrochemical, media, oil and gas, healthcare, brewers, utilities, packaging, healthcare, and EMS; while our top three stock picks are Inari, Hong Leong Bank, and QL Resources.
CGS CIMB said in its “Malaysia Strategy Every dark cloud has a silver lining aid that the key- risks to our earnings projections are slower global growth, inability to pass on rising costs, higher taxes, shortage of foreign workers, rising trade risks and political uncertainties.
The stockbroking house said that the potential upside risks to earnings are better-than-expected commodity prices and the government reconsidering some of the new tax measures to reduce the tax burden.
On the current year, it said that this year is expected to be a more challenging year as it expects investors to tread cautiously into the year as potential headwinds buffeting the markets in the form of new Covid-19 waves (Omicron), return of intra-day short-selling, foreign fund outflows due to Fed taper”.
It said that among other factors that could increase the challenges facing Malaysia is reversals of fiscal stimulus, tighter monetary policy, higher transaction costs for the trading of Malaysia shares, corporate earnings risks due to higher taxes and political risks.
The report said that the probability of GE15 being held in 2022 remains high as the Covid-19 pandemic is under control and 78% of the population were fully vaccinated as of 14 Dec 2021.
However, it said that the downside could be capped by expectations of stronger economic growth as Malaysia reopens international borders following the lifting of the inter-state travel ban since 11 Oct 2021, additional liquidity available for domestic institutional funds like EPF following the end of the various one-off withdrawal schemes under stimulus packages announced in 2020 and 2021, and given that the KLCI is trading at undemanding valuations (forward P/E of 14.3x trading at close to 1.5 s.d. below its 3-year mean
