Highlights

Public Watchlist: PublicInvest's Top Picks for 2019

2019 will see the new government in power for a full year, with efforts to reform and recalibrate the economy possibly starting to show results. We think that Malaysia will continue to deliver a steady and sustainable growth pattern with private sector expenditure to remain as the engine of growth. This will be supported by steady employment prospects, rapid capacity expansion, elevated level of oil prices and sustained manufacturing momentum.

Global markets are seemingly overvalued. With potentially heightened risk aversions going into 2019, will there be a more significant deflation in sentiment, compared to the slight wobbles we are seeing now? Malaysia and Philippines are affected more often than not by foreign flows. But Malaysia’s investment merits appear less attractive vis-à-vis peers heading into 2019. Potential earnings risks over the horizon may signal subdued market conditions.

While there has been recent cheer with regard to the US-China trade situation, this was only to prevent it from getting any worse (ie. further tariffs slapped come 1 Jan, 2019), not necessarily making it any better . Existing actions remain in force, with no certainty that conditions may not escalate again. Add to that the specter of politicalrelated meltdowns in Europe, timelines may be advanced.

Smaller-capitalized stocks are looking compelling. With earnings growth remaining relatively intact, the FBM Small Cap Index’s 31.3% YTD decline has lowered current 1-year forward trading multiples to 7.1x, more than 1 standard deviation below its longterm average of 9.4x.

While opportunities may abound, we wouldn’t suggest jumping in with both feet at this juncture despite obvious market weaknesses. There remain many moving parts to yetunresolved external developments (US-China trade, European politics) which may unsettle nerves very quickly. Add to that the less-than-optimal proposition Malaysia offers in 2019, we think there’s still no great hurry. But we do suggest gradual accumulation, and going ‘Back To Basics’ in light of the many uncertainties brewing over the next few months in particular. Focus should be on inexpensive valuations, earnings visibility and lower-beta names for capital preservation going into 1H 2019, though with selective exposure to growth and/or recovery stories for the alpha play.

Our year-end 2019 target for the FBM KLCI is 1,750 points, which corresponds to a 16x multiple to 1-year forward earnings.

Going into 2019, we like (in no particular order) Alliance Bank, Dayang Enterprise, D&O Green Technologies, EA Technique, Mega First, Perak Transit, Ta Ann Holdings and Uzma. From a trading perspective, Telekom Malaysia and CIMB Group are attractive.

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Stock Name Ref Date Ref Price Price Diff Last Range Open Change Volume Note
ABMB 14-Dec-2018 4.00 2.56
DAYANG 14-Dec-2018 0.57 1.45
D&O 14-Dec-2018 0.77 4.32
EATECH 14-Dec-2018 0.40 0.17
MFCB 14-Dec-2018 3.21 7.10
PTRANS 14-Dec-2018 0.265 0.75
TAANN 14-Dec-2018 2.23 2.98
UZMA 14-Dec-2018 0.59 0.695
TM 14-Dec-2018 2.65 5.75
CIMB 14-Dec-2018 5.82 4.11


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