KUALA LUMPUR (Jan 9): Affin Hwang Investment Bank Bhd expects the equity market to turn in a weaker performance in the first half of the year, followed by a rebound in the second half.
It reiterated its end-2024 FBM KLCI target of 1,600 points, supported by strong corporate earnings growth, due to structural reform of the economy, acceleration of infrastructure spending, the advancing of the energy transition plan, as well as reindustrialisation and data centre expansion.
Last month, it upgraded its call for the Malaysian market to "overweight", and its head of research Loong Chee Wei said Malaysian corporate earnings are expected to grow by 10.5% in 2024, versus -0.7% in 2023.
"I believe the market will be a tale of two halves. For the first half of 2024, it could be weak, possibly due to concerns over the global economy, and whether the US economy is going for a soft or hard landing. We are projecting a soft landing, and that would provide a catalyst for the market to rebound in the second half of this year,” he said at the bank's Macro and Market Outlook 2024 briefing on Tuesday.
Affin Hwang currently has an "overweight" call on seven sectors that contribute about 52% of Bursa Malaysia’s market capitalisation, namely construction, property, utilities, plantation, banking, electronic manufacturing services and healthcare. The research house listed CIMB Group Holdings Bhd (target price or TP: RM6.40), Kelington Group Bhd (TP: RM2.40), Hong Leong Bank Bhd (TP: RM24.00) and Malaysia Airports Holdings Bhd (TP: RM8.30) as among its top picks in 2024.
Loong pointed out that acceleration of the government's infrastructure spending would lead to an increase in earnings for the construction sector of 14.7% year-on-year (y-o-y), and 19.3% y-o-y for the property sector, on the back of expected implementation of mega infrastructure projects, including the RM10 billion Penang Light Rapid Transit (LRT) project, the RM45 billion Klang Valley Mass Rapid Transit 3 (MRT3) project, and the RM6 billion Sarawak Metro project.
“When there's new infrastructure, the order books of construction will benefit from that, and there will be more transit-oriented projects. Property developments can benefit from the improvement in public transportation,” he said.
On the utilities sector, Affin Hwang forecast a strong earnings growth of 25.3% y-o-y, following the government’s plan to increase the renewable energy composition and facilitate cross-border renewable energy trade under the National Energy Transition Roadmap.
"That will be a catalyst for the likes of Tenaga [Nasional Bhd], which is focusing more on expanding renewable energy as part of the energy transition away from coal-fired power plants, which would eventually shut down. Renewable energy engineering, procurement, construction and commissioning contractors that will potentially benefit are the likes of Samaiden Group Bhd, Solarvest Holdings Bhd and Sunview Group Bhd,” Loong added.
As for the plantation sector, the research house projects crude palm oil (CPO) to average around RM4,200 to RM4,400 per tonne this year, increasing from RM3,800 last year, as global palm oil supply is likely to decline this year, due to the El Niño effect that started in 2023.
“Fortunately, in Malaysia, we have more favourable conditions in terms of weather. We expect production of CPO this year to be flat for Malaysia, but declining for Indonesia, where they are more impacted by the El Niño,” said Loong, who expects plantation-sector earnings to grow by 24.3% y-o-y.
Meanwhile, the banking sector’s earnings are projected to increase by 3.8% y-o-y, partly due to an expected increase in foreign direct investment inflows and favourable labour market conditions, according to Loong. “We expect non-interest income to expand, driven by increased capital market activities, while not expecting a significant rise in the cost-to-income ratio and net credit charges.”
