KUALA LUMPUR (Oct 19): TA Securities said in the unlikely event that the Hamas and Israel war escalates, Brent crude oil price could breach US$150 (RM712) per barrel.

In a thematic report on Thursday, the research house said when the price of Brent crude oil increases, Malaysia's government typically experiences potential benefits in terms of revenue.

It said for every US$1 rise in oil prices, Malaysia can bolster its revenue by an additional RM320 million.

“This calculation takes into account only the Petroleum Income Tax (PITA) and petroleum royalties variables.

“Nevertheless, when we introduce another factor, namely the dividend from Petronas, the potential additional revenue from each US$1 increase in Brent prices escalates to nearly RM650 million,” it said.

TA said that as far as the FBMKLCI is concerned, it noticed the impact of war and terrorism-linked events is more short-term in nature.

The research house said if the Israel-Hamas war is contained, the initial kneejerk downside movements in the FBMKLCI will be limited to between 2% and 5%, with the June 9 low of 1,369.41 acting as strong support.

It said sentiment could improve post-ground attacks, assuming Israel will be more willing to participate in peace talks after silencing Hamas.

“In such a scenario, any correction in the FBMKLCI is a good opportunity to buy, as the benchmark index is trading at an undemanding consensus CY24 PER of 13.1x and price-to-book of only 1.2x.

“With ringgit expected to strengthen vis-à-vis the US dollar next year due to possible cuts in the US interest rates and a likely increase in the foreign shareholding, which is only 19.5% currently, we recommend 'Buy-on-Weakness' into the following specific themes, 1) Undervalued Blue Chips (AMMB Holdings Bhd & CIMB Group Holdings Bhd), 2) Defensive Plays (Farm Fresh Bhd, Focus Point Holdings Bhd, KPJ Healthcare Bhd, Padini Holdings Bhd & Scomnet Technologies Bhd), 3) Digitalisation (Telekom Malaysia Bhd), 4) Domestic Infra & Property (Gamuda Bhd, Kerjaya Prospek Group Bhd, Pintaras Jaya Bhd, Sime Darby Property Bhd & Sunway Bhd), 5) Power & Utilities (Tenaga Nasional Bhd & YTL Power International Bhd) and 6) Oil & Gas (Pantech Group Bhd & Velesto Energy Bhd),” it said.

Meanwhile, TA Securities said in a scenario where the war escalates, the correction could be steeper and prolonged for a few months, similar to what transpired during the “9/11 attack”.

“In such a situation, the 'bottom' is anybody’s guess, as it will depend mainly on what occurs during that period. If it mirrors the plunge during the 9/11 attack, the March 2020 low of 1,207.80 is expected to act as a very strong support.

“Bear in mind that was the low we witnessed when the whole world came to a standstill because of Covid-19.

“Thus, it should be a tough nut to crack with the current low foreign shareholding of 19.5%, minimising the possibility of a drag from foreign selling. Besides, at this level, the FBMKLCI will be trading at a very attractive CY24 price-to-book of only 1.0x,” it said.