KUALA LUMPUR (Sept 26): TA Securities Research in a preview of Budget 2024 said domestic sectors should benefit as the government allocates more resources to drive domestic activities to counter the impact of weaker exports as economic growth stalls in the US, China and Europe.

In a note on Tuesday, the research house said building materials (Cahya Mata Sarawak Bhd) and construction (Gamuda Bhd, IJM Corp Bhd, Sunway Construction Group Bhd, TRC Synergy Bhd and WCT Bhd) sectors should benefit from the multi-billion development expenditure after long delays caused by the political uncertainties between 2018 and 2022.

It said increased focus on sustainable development initiatives should benefit companies that are geared towards establishing the power grid to accommodate viable renewable energy (RE) growth and RE exports (Tenaga Nasional Bhd and YTL Power International Bhd) while also benefiting those involved in the manufacturing/supply/sale of products and services related to electric vehicle and solar photovoltaic systems and solutions.

TA Securities said investment incentives and grants to adopt advanced technologies and encourage high-value-added exports will benefit the technology sector (Inari Amertron Bhd, Malaysian Pacific Industries Bhd and Unisem (M) Bhd).

It said telcos (Axiata Group Bhd, CelcomDigi Bhd and Telekom Malaysia Bhd) could benefit from the second phase of the Jaringan Prihatin Programme and digitalisation efforts.

The consumer sector, largely retail and food and beverage (F&B) players (Aeon Co (M) Bhd, Padini Holdings Bhd, Farm Fresh Bhd, Fraser & Neave Holdings Bhd and Focus Point Holdings Bhd), should also benefit from the various government initiatives to increase the disposable income and mitigate the impact of high living costs, especially for the B40 group.

The research house said the sin sectors, brewery (Carlsberg Brewery Malaysia Bhd and Heineken Malaysia Bhd) and gaming (Sports Toto Bhd and Genting Bhd), are likely to rejoice from the absence of duty hikes as the government strives to deter the proliferation of contrabands, and acknowledges the hardship faced by the sector since Covid-19 and earnings disruptions caused by bans imposed by the Kedah, Kelantan, Perlis and Terengganu state governments.

TA Securities said incentives to attract investments into the nation's aerospace parks and promote local content are positive for the aerospace industry.

The research house said UMW Holdings Bhd should benefit as its wholly owned subsidiary UMW Aerospace Sdn Bhd is a Tier-1 supplier of Rolls-Royce’s fan casing for engines.

Its capacity utilisation currently is low at between 50% and 60%, and the local content is only 25%.

Meanwhile, it said DRB-Hicom Bhd is supplying wing parts for Airbus and Boeing.

TA Securities said the property sector is expected to benefit from likely initiatives to promote homeownership among low-to-middle-income first-time buyers and make it more affordable, develop developer-friendly policies for affordable housing, incentives for green development and clarity regarding infrastructure development and special economic zones.

It said relaxation of requirements under the Malaysia My Second Home programme can be an added boon for the sector.

The research house advised investors to buy IOI Property Group Bhd, S P Setia Bhd, Sime Darby Property Bhd, Sunway Bhd, Mah Sing Group Bhd, Glomac Bhd, Ibraco Bhd and Paramount Corp Bhd.

TA Securities said that in the last 26 years, the probability of FBMKLCI advancing in the one-month and two-week periods before the budget was as high as 58% and 65% respectively, and the average return was 0.7% in the one-month period and 1.2% in the two-week period pre-budget, which were usually followed by immediate-term corrections.

It said the probabilities used to be higher at 65% in the one-month period and 80% in the two-week period pre-budget, and average return used to be higher at 1.5% in the one-month period and 1.8% in the two-week period pre-budget, if the last six years since 2018 is excluded due to the political chaos and uncertainty that Malaysia went through.

The research house said additional downside pressure will come from the US Federal Reserve's (Fed) indication that the US interest rate will likely stay elevated for a prolonged period to dampen inflation.

TA Securities said that in the Fed's September meeting, it was indicated that one more hike is on the cards later this year, which could happen in the November or December meeting, then two cuts in 2024, two fewer than previously indicated.

“The lack of aggressive fiscal measures from China to revive its slowing economy is also an immediate-term dampener for Malaysia, which counts [China] as its second largest export destination.

“Thus, we foresee limitations in the FBMKLCI surpassing our 2023 year-end target of 1,515, based on CY2024 (calendar year 2024) PER (price-earnings ratio) of 13.3 times,” it said.