Highlights

Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Fri, 27 Nov 2020, 11:02 AM

 

4QCY20 Investment Strategy - A Rocky Road To Recovery

Author:   |    Publish date:


Three conditions at play today are setting the stage for a positive stock market close for 2020 despite the prevailing negative sentiment around the slow progress in dealing with the pandemic. Firstly, liquidity remains ample – this is key in order to fund both private and public sector recoveries; secondly, the current negative earnings cycle is expected to bottom as economic conditions recover, pointing to a better 2HCY20 with follow through momentum into 2021; and thirdly, a virtuous circle of confidence can develop very quickly on positive news of vaccine development, potentially sparking a risk-on mode in 2021. In our 3QCY20 Strategy Note “Volatility Up Ahead” released a quarter ago, we stated: “Chances of a breakthrough in treatment rises with time, but that is probably a case for 2021”. Now is the time to position for that. Continue to adopt a barbell strategy to ride the near-term political risks and bouts of anxieties over rising new Covid-19 cases. Keepweighted in large cap yielders that include the rubber gloves while having sufficient exposuresin fundamentally sound small-mid caps in the tech space. Be so bold as to dip into selected travel & leisure stocks for they offer deep value. With interest rates expected to remain low for at least another year, offsetting elevated equity risk premium and coupled with premium valuation for rubber gloves makers, the target PE multiple for the FBMKLCI remains above historical mean. Based on a blended 16.8x PE multiple on recently raised FY21 EPS of 95.5 sen (thanks to EPS upgrades in TOPGLOV and HARTA), our end 2020 target is raised from 1,590 to 1,603. We recommend OVERWEIGHT call on the following sectors: Construction, Gaming, Rubber Gloves, Technology and Utilities and UNDERWEIGHT Healthcare and Media. Our top picks for 4Q20 are: D&O (OP, TP: RM1.20), GAMUDA (OP, TP: RM4.10), GENM (OP, TP: RM2.75), HLBANK (OP, TP: RM17.00), INARI (OP, TP: RM2.50), JHM (OP; TP: RM2.00), KLCC (OP, TP: RM8.55); MRCB (OP, TP: RM0.75), TM (OP; TP: RM4.95) and TENAGA (OP, TP: RM13.95).

FBMKLCI’s 2020 and 2021 EPS lowered post 2QCY20 results earnings season but expect earnings’ turnaround in the 2HCY20:A review of 2QCY20 results and guidance led us to cut FBMKLCI 2020 and 2021’s EPS expectations for a third consecutive quarter. Overall, worse-than-expected hits were those in Gaming, Oil & Gas, Building Materials and Property sectors. As a result, on 2nd September, the FBMKLCI's FY20/21 core EPS were reduced to 68.7/91.4 sen from 78.3/93.2 sen. However, TOPGLOV’s FY08/20 results announced on 17th September led to the upgrade in both its and HART’s earnings estimates which resulted in us upgrading FY20/21 core EPS to 73.1/95.5 sen. Post these adjustments, the core EPS for FY20 represents 23% annual contraction and a rebound of 31.0% in FY21, from a lowered base. That said, we believe that earnings have bottomed in the 2QCY20, due to the worst impact of the MCO taking hold during this period. On our estimates, the FBMKLCI delivered 30.0 sen EPS in the 1HCY20 and we expect a sequential growth of 43% in the 2HCY20 to bring the full year 2020 EPS to 73.1 sen. We see strong sequential growth in the banks just on the absence of large modification losses that dragged 2QCY20 and loans to pick up, as well as the gloves sector where HARTA and TOPGLOV are seen benefitting from stronger upsurge in ASP in coming months. Sharp rebounds in PETDAG, TENAGA and SIMEPLT further contributed to this upside.

For the FBMKLCI in 2020, the EPS growth/contraction profile remains fairly similar compared to a quarter ago (see Chart 2). And that is, all sectors except rubber gloves, healthcare, plantation and the utilities sectors are expected to exhibit earnings contraction in 2020. However, the worst of earnings contractions may be over. Beyond the 2HCY20, we see higher EPS for the FBMKLCI in FY21, but whether earnings expectations will be raised depends on a number of factors. First, we look towards end October for greater clarity on where the banking sector credit cost will likely land after finalising the amount of loans that require continued assistance beyond the loan moratorium period. And second, given the strong order pipeline in 2021 on high ASPs for the gloves sector, there may be room for contributions from TOPGLOV and HARTA to be bumped up. And finally, the likelihood of SUPERMX to be included in the benchmark may raise the overall EPS given that its CY2021 earnings would by our estimates, far exceed that of Genting Malaysia’s which it should likely replace. That said, we think that investors in the gloves sector should look beyond ASP momentum to drive investment returns. It is time to consider adjusting target PE multiples towards mean reversion to reflect a sustainable base-earnings beyond CY22 that is higher than pre-Covid19 levels. Based on the assumption that SUPERMX replaces GENM in the FTSE Malaysia November review with the same weight, the FBMKLCI EPS could potentially be bumped up by close to 2%. While we like GENM and GENTING as deep value plays, the investment case for them is a normalisation in earnings that will take place more fully in 2022.

Source: Kenanga Research - 2 Oct 2020

Share this

Related Stocks

Chart Stock Name Last Change Volume 
D&O 1.77 +0.10 (5.99%) 3,720,700 
GAMUDA 3.67 0.00 (0.00%) 290,800 
GENM 2.51 -0.09 (3.46%) 14,995,500 
HLBANK 17.00 -0.08 (0.47%) 80,600 
INARI 2.68 +0.03 (1.13%) 5,155,100 
JHM 1.95 +0.07 (3.72%) 1,640,400 
KLCC 7.70 0.00 (0.00%) 15,200 
MRCB 0.44 -0.01 (2.22%) 1,457,000 
KENANGA 0.895 0.00 (0.00%) 4,816,700 
TENAGA 10.96 -0.04 (0.36%) 861,400 
TOPGLOV 7.00 -0.05 (0.71%) 16,178,600 
HARTA 14.52 -0.14 (0.95%) 871,000 
TM 5.00 0.00 (0.00%) 1,764,600 

  Be the first to like this.
 
aarontan1987 covid still around with no end to the efficacy and efficiency of a sound proven vaccine kenanga still got time to write for sector rebound bullocks??? damn right u are hahahahahahahahahahahahaha
02/10/2020 8:36 PM


APPS
I3 Messenger
Individual or Group chat with anyone on I3investor
MQ Trader
Stock Screener using Technical and Fundamental criteria
MQ Affiliate
Join the MQ Affiliate Program today to earn rewards
 
 

351  461  636  1015 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 AT 0.200.00 
 KANGER 0.185+0.005 
 KGROUP 0.060.00 
 ASIABIO-OR 0.015+0.005 
 MTRONIC 0.115+0.005 
 IRIS 0.35-0.005 
 FINTEC 0.11+0.015 
 PA 0.155+0.005 
 VIVOCOM 0.935+0.13 
 BIOHLDG 0.315+0.025 

FEATURED POSTS

1. The Equity Market Index Benchmark in Malaysia CMS
2. Trading Scenarios of Derivatives Bursa Derivatives Education Series
3. Derivatives 101 Bursa Derivatives Education Series
4. Why Trade FKLI? Bursa Derivatives Education Series
5. MQ Trader - Introduction to MQ Trader Affiliate Program MQ Trader Announcement!

TOP ARTICLES

1. Jaks Resources - Jaks Hai Duong Power Plant Achieved Commercial Operation Date (COD) !!! DK
2. Should we buy Top Glove since it has been plunging due its 28 factories shut down? Koon Yew Yin Koon Yew Yin's Blog
3. TOP GLOVE LOCKDOWN AND SUPERMAX SHARE PRICE The way I see it
4. Kelington Group Berhad ("KGB") - Above Expectations (TP: RM2.30; +35% upside) by Kenanga Research Investment Ideas - Value and Growth
5. VIVOCOM: End of Day Report (26 Nov 2020) See Jovin
6. 【Growth成长股】AWC Berhad (7579) – Benefit from Strong Order Book Amounted Close to RM1Bil Sanitize and Disinfection Healthcare Stocks
7. Top Glove’s 28 factories shut down should benefit other glove makers - Koon Yew Yin Koon Yew Yin's Blog
8. TOP 10 INTERESTING STOCKS WITH COMMENTS BY CALVIN TAN RESEARCH THE INVESTMENT APPROACH OF CALVIN TAN
PARTNERS & BROKERS