KUALA LUMPUR (Jan 13): Malaysia's economic growth could slow to 5.1% in 2015 from an expected 5.8% last year, amid a challenging global economic outlook, said Kenanga Investment Bank Bhd.

Its head of research Chan Ken Yew cited factors such as a high base effect and the implementation of the Goods and Services Tax (GST) for the moderate pace of the country's economic growth.

"This year, we are seeing a slightly lower growth. The reason being, one would be the high base effect, and secondly in terms of the implementation of the GST," he told a press briefing on Kenanga's first quarter market outlook today.

"Based on the previous experience of other countries, once the GST is implemented, there will be a slowdown in private consumption," he said.

Going forward, Chan said the economy will be driven mostly by exports, capitalising on the weakened ringgit against the US dollar.

The research house's average ringgit forecast of 3.40 against the US dollar is under review, as it is based on an assumption of average global oil price level of US$70 per barrel.

For the FBM KLCI, Kenanga is keeping its year-end forecast of 1,905 points, implying 17.7 times price-earnings ratio (PER), on the back of earnings growth forecast of 1.3%, 4.7% and 7.4% for 2014, 2015 and 2016 respectively.

However, Chan said there is potential for a downgrade in the research house's FBM KLCI forecast, mostly depending on how corporate results pan out in February.

"Judging from the trend of the PER right now, it looks like it is in the process of reverting back to its long-term mean. If this is the case, the high target PER (17.7 times) would not be realistic.

"We probably have to peg it at a lower PER of 16.5 times. Depending on corporate results, we could have a (lower) year-end target of 1,860 points (for the FBM KLCI)," he said.

In terms of equity picks, Chan said Kenanga has opted for a more selective theme-oriented approach in picking stocks rather than a sectorial approach.

Kenanga recommends bottom-fishing heavily sold down stocks, such as those in the oil and gas (O&G) sector, and beneficiaries of the GST implementation or stocks that are less sensitive to GST such as those in export-oriented sectors including electrical and electronics, original equipment manufacturers and glove makers.

Kenanga also prefers select construction players and resilient sectors such as telecommunications, real estate investment trusts, power, pharmaceuticals, and consumer staple foods, and select alpha stocks.

Among its stock picks for the first quarter of 2015 are SapuraKencana Petroleum Bhd (TP: RM3.03), Dialog Bhd (TP: RM1.67), Barakah Offshore Petroleum Bhd (TP: 1.34), Uzma Bhd (TP: 2.02), QL Resources Bhd (TP: RM3.86) MMC Corporation Bhd (TP: RM3.21) and Malakoff Corp Bhd, which is expected to be listed in the second half of 2015.