This article first appeared in The Edge Malaysia Weekly on July 1, 2024 - July 7, 2024

CONTINUED interest in thematic plays centring on artificial intelligence, data centres and key infrastructural developments in the second half of 2024 is expected to propel Bursa Malaysia towards the year-end target of about 1,700 points set by analysts despite the ongoing pullback in the markets.

Analysts are also expecting heightened interest in renewable energy, namely solar and biomass, amid the execution of the National Energy Transition Roadmap in the last few quarters, while a pickup in trading activities is seen as beneficial to the shipping and logistics sector.

“We have been advocating playing the data centre theme as part of a larger new investment cycle theme and focusing more on contractors and real estate companies involved in the initial building of data centres. As for operators, we have been selective as there are demand risks that we think the market may not be fully appreciating,” Chehan Perera, CGS International Malaysia Research head and strategist, tells The Edge.

The research house, which has revised its year-end FBM KLCI target marginally to 1,760 points from 1,755 points previously, says its key focus over the past year has been domestically driven companies and sectors that play into its expectation of a pickup in private consumption and investment.

“That has not changed. In addition, we believe there could be pockets of opportunity in upstream-focused planters and reasonably priced tech companies, with the latter riding a potential tech up cycle,” he says.

Having outperformed in the first half of the year, Bursa has entered a season of consolidation which market experts say is healthy and temporary given the significant rally in share prices during the period. As at June 28, the FBM KLCI had risen 10.38% year to date to breach the 1,600-point mark with foreign inflows outweighing outflows.

Reports show that foreign buyers invested in the utility, transport and logistics, and technology sectors, whereas plantation, telecommunications and media, and energy saw the biggest outflows. The FBM KLCI closed at 1,590.09 points last Friday amid broad-based profit-taking that saw more than 900 counters on the local bourse decline over the week.

Other notable investment interest in the first half of the year included gold as tensions in the Middle East and central banks’ demand for the safe-haven commodity drove the price of the yellow metal to a record US$2,449.89 per ounce on May 20. As at June 28, gold-linked counters on Bursa such as Poh Kong Holdings Bhd (KL:POHKONG) and Tomei Consolidated Bhd (KL:TOMEI) had risen 30.64% and 39.52% year to date respectively, while pawnbrokers Pappajack Bhd (KL:PPJACK) and Evergreen Max Cash Capital Bhd (KL:EMCC) had declined 5.24% and gained 6.1% respectively.

“Our market had a good run. Hence, the recent weakness is a healthy correction and, in fact, presents an opportunity for bargain-hunting. We have seen some of that during the week,” Rakuten Trade head of equity sales Vincent Lau tells The Edge.

“There has been a short-term correction or decent profit-taking in stocks that have rallied in tandem with the data centre theme. These are the ones that are suffering the most for now. But we think if there is a decent consolidation, [some of the counters] may be good to pick up. Tech is still on the radar screen, although there should be a focus on earnings rather than the data centre hype,” says Malacca Securities Sdn Bhd head of research Loui Low.

“We still think utilities [power and water] will be solid in the second half. We also like the cybersecurity sector,” says Low.

Tenaga Nasional Bhd (KL:TENAGA), for example, is seen as a proxy for the data centre play. Of the 21 analysts polled by Bloomberg, there are 12 “buy”, seven “hold” and two “sell” calls, with a consensus target price of RM14.52.

Kenanga Research observes in a June 25 report, however, that justice “has been done to Tenaga Nasional following a 40% appreciation in its share price for the year to date and the addition of RM23 billion to its market capitalisation on the back of the frenzy in data-centre-related stocks”.

Meanwhile, Affin Hwang Investment Bank, which upgraded its call on the technology sector to “overweight” from “neutral”, likes Malaysian Pacific Industries Bhd (KL:MPI), Unisem (M) Bhd (KL:UNISEM) and Inari Amertron Bhd (KL:INARI). It has also added Frontken Corp Bhd (KL:FRONTKN) (“buy”, target price: RM5.80), which is seen as a beneficiary of chip manufacturers’ transition to smaller semiconductor nodes, and ViTrox Corp Bhd (KL:VITROX) (“buy”, target price: RM5.15), due to the continuing demand for its inspection equipment as well as its position in the Nvidia factory automation supply chain.

“While local sector price-earnings (PE) valuations are now comparable with that of the Nasdaq, we would argue that there is still room for further PE multiple rerating. We attribute the sharp jump in sector PE multiple over the past one to two months to improved earnings during the recent quarterly reporting season,” says the investment bank.

“However, scarcity, due to the small concentration of locally listed tech companies, and large domestic liquidity also played a role in the sharp gains locally, apart from the price catch-up against the Nasdaq’s PHLX Semiconductor Sector Index. As such, we think there is a high chance of further valuation catch-up (possibly to two standard deviations above its five-year mean) as sector earnings recover and investor interest returns correspondingly.”

MIDF Research says in a June 28 report that it sees value in laggard sectors, particularly telecommunications on improving clarity on the 5G Dual Network policy and the growing demand for fibre optics backhaul, network hubs, submarine cables and undersea cable landing points from new data centres, which it believes has not been fully priced in by the market.

The research house continues to favour the construction sector as it will be buoyed by the rollout of mega public infrastructure projects led by the Mass Rapid Transit Line 3 (worth RM45 billion), on the heels of the award of the RM10 billion Mutiara Line of the Penang Light Rail Transit and a slew of data centre jobs. It is also watching the oil and gas sector — particularly the thriving offshore support vessel, floating production storage and offloading (FPSO) and land storage segments — and the tech sector, underpinned by the recovery in the semiconductor and electronics manufacturing services space as well as the ample growth opportunities in integrated circuit design and cybersecurity. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.