KUALA  LUMPUR (Dec 2): Maybank IB Research has lowered its end-2015 target for the FBM KLCI to 1,940 and said that earnings had weakened in 3Q 2014 and the research house nows expect a slower 2014 KLCI core earnings growth of 1.6%.

In a strategy note Tuesday, the research house’s Wong Chew Hann advocated a more defensive portfolio in 2015, and to position for stronger earnings in 2016.

She said challenges nonetheless remained, on both the external and domestic fronts in 2015.

“Earnings growth risks remain on the downside, for 2015 will see the 6% GST kicking in from 1 Apr, which would dampen consumer sentiment further and raise the cost of doing business.

“Easing the burden would be the increased cash/BRIM handouts, lower personal income tax rates and lower fuel prices,” said Wong

Maybank IB Research said that at 1,778, the FBM KLCI trades at 17.0x/15.7x 2014/2015 PERs and 15.8x on 12M forward earnings, 0.3SD above its long term mean of 15.3x (since 2001) (+1SD is 16.9x).

“Our earlier 1,940/2,040 end-2014/ end-2015 KLCI targets are no longer realistic.

“We are now looking at slightly above 1,800 for end—2014, and 1,940 for end-2015,” it said.

Maintaining her “Neutral” rating on the FBM KLCI, Wong said that amid a rather feeble outlook for 2015, she suggested holding a more defensive portfolio.

“Telco offers less earnings downside, REITS decent yields. Beyond that, any market weakness is an opportunity to position for stronger earnings in 2016 as the inflationary impact of the GST wanes and bottomlines get an additional boost from lower income taxes,” she said.  

Wong said thematics for 2015 include the 11MP, further strengthening of the USD/weakening of the Yen, positioning for Sarawak’s elections, and M&As which unlock values.