KUALA LUMPUR (March 17): As the second quarter of 2023 (2Q2023) approaches, Rakuten Trade said the banking and telecommunication (telco) sectors are interesting to look at after achieving good earnings in the recent quarterly results (4Q2022). 

In a virtual media briefing on the 2Q2023 market outlook on Friday (March 17), the firm said it is also rooting for the construction sector this year as it believes the Malaysian government intends to increase spending on development and infrastructure projects. 

“For this year's corporate earnings, I think banks and telco are supporting the overall growth. Banks are still looking lively with earnings estimated to grow by 14.6%, while telco earnings are estimated to grow by 22.8%,” Rakuten Trade head of research Kenny Yee said.

He said this after seeing corporate earnings in Malaysia come in mixed with selected downward revisions for financial year 2022. 

“Nonetheless, calendar year 2023 earnings growth remains decent at 14.2% estimation (from 9.6%), last year it was downgraded to 14.8% from 21.6%,” Yee said. 

Rakuten Trade vice president of equity research Thong Pak Leng, who was also present in the briefing, said banks are expected to see an uplift in earnings as overall industry loans growth are expected to come in at 4% to 4.5% in 2023. 

“Net interest margin (NIM) is expected to improve with easing credit cost and lower effective taxes. Banks have displayed resilience and achieved solid earnings in the recent quarterly results. We like Maybank (Malayan Banking Bhd) for its solid dividend yield [and] AMMB Holdings Bhd for its attractive valuations,” Thong said. 

He continued to say that the recent 4Q2022 quarterly reports saw more than 50% of telco players reporting earnings above consensus expectations.

“Demand for local mobile and broadband will be supported by wider coverage towards the completion of Phase One of the Jendela (Jalinan Digital Nasional) initiative. DNB will continue its role as a 5G single wholesale network but it will be managed better to ensure that it achieves its 5G deployment targets,” Thong said. 

He said telco valuations are still attractive overall with decent dividend yields. Rakuten Trade’s top picks for the telco sector are CelcomDigi Bhd, Telekom Malaysia Bhd and OCK Group Bhd.

Besides the banking and telco sectors, Thong also favours the construction sector after it received a higher development expenditure of RM97 billion under the revised Budget 2023 tabled on Feb 24, versus RM95 billion previously tabled on Oct 7, 2022.

“We believe the government intends to increase spending on development and infrastructure projects. Recent reports to revive the RM50 billion HSR (Kuala Lumpur-Singapore High Speed Rail) project should boost sentiment,” he said.

“Keep in view those big contractors, namely Gamuda Bhd, IJM Corporation Bhd and Sunway Construction Group Bhd.” 

Recovery theme benefits gaming and REIT sectors

Thong added, during his presentation on sectoral performances, that Rakuten Trade placed an “overweight” rating for the gaming and real estate investment trust (REIT) sectors, based on the influx of Chinese tourists to boost footfalls in shopping malls and casinos. 

“The reopening of China’s international border will further improve footfall in shopping malls and hotels. Yields are reasonable at around 5% to 6% as opposed to the 10-year MGS (Malaysian Government Securities yields) of 4.04%, however any revision in rates may have counter effects,” he said. 

The firm’s top picks for the sector are Sunway REIT, Pavilion REIT and YTL Hospitality REIT.

Thong said the gaming sector will be a major beneficiary of recovery in 2023, driven by improving ticket sales for number forecasting operators (NFOs) and returning of China’s tourists to Genting Highlands. 

“Genting Malaysia is poised to record stronger earnings in 2023, boosted by the reopening of all hotel inventory and addition of new theme park attractions while NFOs still offer attractive dividend yield,” he said.

Rakuten Trade chose Genting Malaysia Bhd, Magnum Bhd and Sports Toto Bhd as its top picks of the sector. 

Dwindling retail participation affected by many IPOs

Yee said that retail participation in Bursa Malaysia has somewhat improved in the first two months of 2023, seen through the growth in the daily trading volume, especially on small-cap companies. 

However, Yee added that the retail participation has dwindled recently perhaps due to the heightened global market volatility or possibly affected by a high number of initial public offerings (IPOs).

“Following 35 IPOs in 2022 with RM11.5 billion market capitalisation, this year may see another 39 IPOs worth RM10 billion in market capitalisation. This will suck some liquidity out of the secondary market,” he said. 

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