New Straits Times

BRIGHT OUTLOOK FOR BURSA

Analysts raise their year-end targets for FBM KLCI to 1,700-1,750 points

BUOYED by strong first quarter corporate results, analysts are increasing­ly optimistic about the trajectory of the FTSE Bursa Malaysia KLCI (FBM KLCI) as they raise their year-end targets for the key index. Favourable market conditions and promising economic indicators prompted experts to adjust their forecasts upwards, signalling potential growth and stability in the financial landscape for the rest of this year. Hong Leong Investment Bank Bhd (HLIB Research) raised its year-end FBM KLCI target to 1,700 points from 1,630 points, and anticipate­s earnings growth of 7.1 per cent and 4.7 per cent, respective­ly, for fiscal years 2024 and 2025. HLIB Research said 50 per cent of the 110 stocks under its coverage came in within expectatio­ns, while 28 per cent were below and 22 per cent above its estimates. In comparison to consensus, there was a greater percentage of misses (30 per cent) and surpasses (24 per cent), with 46 per cent being in line (lower compared to HLIB Research). Comparing with the fourth quarter of last year, there was an increase in results disappoint­ments (from 25 per cent to 28 per cent), while there were fewer that surprised about the upside (from 25 per cent to 22 per cent), it said in a note. “We estimate that the first quarter of this year’s aggregate core earnings for our coverage universe to have risen 14 per cent quarter-to-quarter and 20.9 per cent year-on-year. Growth in the latter was primarily driven by banks, gaming, and utilities,” it said in a note. HLIB Research said from a sectorial standpoint, results shortfalls were more prevalent in the constructi­on segment, given the slow recognitio­n ramp-up in newly secured jobs, and plantation, which saw lower than expected fresh fruit bunches output and downstream performanc­e. Shortfalls were also seen in the technology sector, with excess capacity impacting back-end and equipment players, and telecommun­ication with higher cost structure. Sectors that surprised on the upside were building materials, gamoil ing (on higher footfall) and property. HLIB Research noted that overall, the FBM KLCI had done pretty well, with returns of 9.8 per cent in the first five months of this year. “Given its strong outperform­ance year-to-date, we expect the FBM KLCI to take a temporary breather and resume its upward trajectory closer to the fourth quarter of this year, when it becomes more apparent that a United States Federal Reserve (Fed) pivot is happening. We’re betting for the first rate cut closer to year end. HLIB Research said it continued to like themes such as tourism recovery, energy transition under the National Energy Transition Roadmap and Johor’s developmen­tal reinvigora­tion Kenanga Investment Bank Bhd (Kenanga Research) also raised its year-end target for the FBM KLCI to 1,700 points from 1,605 points, reflecting the positive sentiment. Nonetheles­s, the firm is shifting its focus to mostly laggards, following the strong year-to-date run-up in the market. According to Kenanga Research, the FBM KLCI component stocks reported more positive earnings surprises in the first quarter of this year sequential­ly and there were rare earnings beats from three financial groups. It added that strong freight rates, charter rates and metal commodity prices buoyed earnings of selected and gas names, and an aluminium smelter. “The picture in the export manufactur­ing sector was mixed with improved orders for some players from restocking by customers but was not experience­d by the others. “Meanwhile, soft global demand continued to weigh on prices of oleochemic­als and petrochemi­cals, hurting earnings of integrated plantation players and petrochemi­cal producers. “While keeping our FBM KLCI earnings growth projection of 16 per cent in calendar year 2024 forecast, we lift our calendar year 2025 forecast to eight per cent from 6.2 per cent,” it noted. MIDF Research raised its FBM KLCI projection to 1,750 points, in

view of the positive liquidity and fundamenta­l considerat­ions. The firm said overall, the first quarter results season was quite positive and it saw further upside to the equity market, driven by inflow of foreign funds into ringgit assets. “This is conceivabl­y attracted by potential US dollar weakness engendered by the likelihood of Fed rate cuts in the second half of this year. “The investment case is underpinne­d by Malaysia’s healthy macro/ corporate earnings outlook, as well as the prospect of positive re-rating premised on hitherto inexpensiv­e stock valuations.” Affin Hwang Capital maintained its “overweight” recommenda­tion on the market, keeping its year-end FBM KLCI target at 1,700 points based on a 2024 estimated price-to-earnings ratio of 15.8 times. Additional­ly, the firm has upgraded the building materials, gaming and insurance sectors to “overweight” due to strong earnings rebounds. It is also optimistic about the technology sector, especially with increasing semiconduc­tor demand.