KUALA LUMPUR (Sept 19): Rakuten Trade Sdn Bhd has raised its year-end target for the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) to 1,780 from its previous projection of 1,730, driven by expectations of stronger corporate earnings and a more robust ringgit performance.

The total net earnings of the FBM KLCI’s 30 component stocks in calendar year 2024 (CY2024) are likely to jump 16% year-on-year, Rakuten Trade head of research Kenny Yee said during a virtual media briefing on Rakuten Trade’s 4Q2024 Market Outlook.  

“For context, based on the current 15.5 times PER (price-earnings ratio) on CY2025 estimates, the index could potentially hover around the 1,810 level,” Yee said.

Earnings for the FBM KLCI component stocks in the second quarter of this year surged 22.3% to RM18.7 billion, up from RM15.3 billion in the corresponding quarter last year. Sequentially, the total net earnings rose 7.2% compared to the first quarter.

“Our seasonal analysis indicates that the fourth quarter tends to be the second-best performing quarter,” Yee said. “Certainly this 120-point increase could be easily achievable given the influx of foreign funds usually targeting the top 10 companies within the KLCI components."  

Rakuten Trade has a bullish outlook on the banking, construction, power and utilities, real estate investment trusts (REITs), technology, and telecommunications sectors.

Its top picks include Binastra Corp Bhd (KL:BNASTRA; target price [TP]: RM1.71), Crest Builder Holdings Bhd (KL:CRESBLD; TP: 97 sen), Eupe Corp Bhd (KL:EUPE), Kerjaya Prospek Group Bhd (KL:KERJAYA) and OCK Group Bhd (KL:OCK).  

Earlier in the day, the FBM KLCI opened 0.16% higher, gaining 2.68 points to 1,663.27. At 11.50am, the index stood at 1,662.38 — 1.79 points or 0.09% higher from the previous close.   

The benchmark index reached its year-high of 1,684.68 on Aug 29, marking its highest level since Dec 14, 2020. Year-to-date (as of Sept 9) the index has climbed over 14%, outperforming regional peers, including Vietnam (+12%), the Philippines (+8%), and Singapore (+8%).

The ringgit is strengthening against the US dollar, and recently breached the RM4.20 threshold, up from its year-low at RM4.75 in April.

Also supporting the ringgit is the US interest rate cut of 50 basis points (bps) announced on Thursday morning.

The local currency will "further benefit local markets" by improving the profitability of export-driven industries and attracting foreign investments, Rakuten Trade noted.  

The ringgit is currently undergoing some normalisation and expects it to strengthen to between the RM4.10/20 range by end-2024.

"Depending on the spread differential between our 10-year MGS (Malaysian Government Securities) versus US 10-year yield, movements of the ringgit may dip below the 4.00 mark if the spread differential continues to widen from a simple average of between 80-100bps (since 2000)," Yee added.

Further supporting the ringgit is Malaysia’s “relatively stable" domestic political environment, with increasing focus on economic recovery and growth, the research house said.

From policy perspective, investors will be keeping an eye on the upcoming Budget 2025 announcement, which will be revealed in October.