Solid execution, visible growth
Support from sturdier global growth, low interest rates and ample liquidity
Overweight oil & gas, construction. Underweight telcos, consumer services
Key picks with solid execution, visible growth: Public Bank, SapuraKencana, Bumi Armada, IJM Corp
Buy small-mid caps with favourable risk-reward profiles: MKH, TSH Resources, Muhibbah Engineering
Supportive global growth environment. For 2014, we foresee support for the KLCI from slightly sturdier growth in key economies (US, Eurozone, China), low interest rates, and ample liquidity. This is partly offset by mounting cost pressures, leading to slower growth in domestic consumer spending and tighter margins. Continued capital outflow could further weigh down Malaysia Government bonds and Ringgit. Our year-end KLCI target is 1,930, based on 15x 2015 earnings.
Selective opportunities. Overweight fast growing Oil & Gas and Construction sectors. Underweight Telcos on valuation and Consumer Services given the challenging outlook.
Solid execution in delivering earnings. We favor stocks with the track record, ability and market positioning to deliver earnings in competitive environments: Public Bank and HLFG. Both have superb asset quality with gross NPL ratio below industry. Ride standout growth. Amid the foreseeable macro challenges, we project several segments to have relatively stronger growth.
Emerging global champions: We expect Oil & Gas sector earnings to grow faster than others. Within the sector, SapuraKencana, relentless in its pursuit of growth, is poised for explosive growth driven by the Seadrill and Newfield acquisitions. Bumi Armada is emerging as a global player with the massive Kraken FPSO win.
Infrastructure growth: The Construction sector will also register among the strongest earnings growth in 2014. Our sector pick is IJM Corp. The West Coast Expressway will be a major boost to its various core businesses. The concession has achieved financial close and more than doubles the Group’s outstanding orderbook. Other sector picks: Gamuda (most leveraged MRT proxy) and MMC (significant discount to SOP).
Strong and visible growth mid-caps: Muhibbah Engineering is leveraging on its rare new Petronas fabrication license, while MKH and TSH Resources will see superior FFB growth propelled by young oil palm tree profiles.
Structural changes/M&A plays: Bursa Malaysia will benefit from a revamp in fee and cost structure. The potential sale of TA Enterprise’s broking business could be a re-rating catalyst for the stock.
Publish date: 08/01/14