KUALA LUMPUR (July 6): Despite challenging external factors, MIDF Amanah Investment Bank Bhd Research has maintained its end-2018 target for the FBM KLCI at 1,800 points on the back of resilient domestic fundamental growth.

In a strategy note today, MIDF Research said the various external headwinds that could rein in the performance of the local bourse in the short and medium term. However, it added that the end-2018 target for KLCI at 1,800 points will be  driven by the strong domestic fundamental.

The research house said Malaysia’s domestic fundamental is strong driven by four positive catalysts, namely, GDP growth at a healthy pace of 5.5% in 2018, stable inflation, firmer current account surplus and business confidence to recover strongly in the third quarter of 2018. 

“We forecast Malaysia’s economy to expand by 5.5%, with inflation to moderate to 2.6% this year,” MIDF said, adding the “exports growth is expected to grow 9.3%, with USD to Ringgit  exchange rate to end the year at 3.95, on the back of the government’s focus on institutional reforms as well as being investor-friendly".

Furthermore, the research house opined the business confidence is expected to come strong in third quarter of 2018 once the National Budget 2019 tabled in October and followed with the Mid-Term Review of the 11th Malaysia Plan.

MIDF Research said the baseline target equates to price-earnings-ratio (PER) of 16.6 times or -0.2 standard deviation, tweaked from the earlier PER of 16.3 times or -0.5 SD.

The research house said the tweaked of the valuation was due to the recent changes in FBM KLCI constituents, with the inclusion of three new members with starkly above average PER valuation including Dialog Group Bhd, Hartalega Holdings Bhd and Malaysia Airports Holdings Bhd, together and the exclusions of a same number with average or lower than average PER valuation, such as AMMB Holdings Bhd, Astro Malaysia Holdings Bhd and YTL Corp Bhd.