KUALA LUMPUR (June 27): Hong Leong Investment Bank Bhd said its top Malaysia stock picks include Public Bank Bhd and Tenaga Nasional Bhd as Hong Leong maintains its FBM KLCI target at 1,770 points.

In a strategy report today, Hong Leong said it maintained its 1,770-point target for the KLCI based on a price-earnings (P/E) ratio of 15.5 times. Hong Leong said it has "buy" calls for Public Bank and Tenaga shares with target prices of RM26 and RM17.50 respectively.

"It is tough to be positive on Malaysian equities in the near term as the new administration is walking a tightrope between rakyat-friendly measures and fiscal prudence while reforms are still in its early days. Abroad, 'tariff tantrums' pose an exogenous risk that is tough to predict.

"However, with the KLCI's P/E at -2SD and P/B at -1SD below mean, this should give some reason to at least nibble on Malaysia. Our KLCI earnings growth for 2018 is at 6% and we maintain our 1,770 target based on 15.5x P/E (-1SD) tagged to one year forward rolling earnings. While foreigners have been net sellers every day since May (totalling RM10.1 billion), we believe it is still premature to call an end to the exodus," Hong Leong said.

At Bursa Malaysia today, Public Bank shares rose 22 sen at 11:42am to RM23.12 among top gainers. Hong Leong said Public Bank is expected to benefit from consumption recovery as the financial services provider has the highest proportion of retail loans at 64%. The investment bank said it believes that investors seeking banking exposure in a down market will gravitate towards Public Bank given its superior asset quality.

Tenaga's valuations are attractive. Hong Leong said Tenaga's share price has fallen 14% after Malaysia's 14th general election. As such, Tenaga's valuations are attractive at 10.5 times and 10.3 times financial year 2018 and 2019 earnings respectively, according to Hong Leong.