Thursday 28 Mar 2024
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KUALA LUMPUR (Sept 28): Hong Leong IB Research said there is downside risk to its 2018 Malaysia gross domestic product (GDP) forecast of 4.8% coming from the commodity sector.

In a strategy note today, the research house said the escalating US-China trade war could shave 0.1 percentage point off Malaysia’s GDP growth but there are opportunities for electronic manufacturing services (EMS) players.

“We sense lower government spending propensity with the revelation of GST trust account shortfall and tax refund owing.

“Given such, we expect the 11MP midterm review (18 Oct) and Budget 2019 (2 Nov) to have a relatively muted market impact.

“The KLCI’s P/E is -1SD below mean but this is on back of meagre earnings growth of 2% and 5% for 2018-2019, below its post-GFC CAGR of 7%,” it said.

The research house said its FBM KLCI target of 1,830 is based on 16x P/E tagged to mid-2019 earnings.

“New additions to our top picks are DRB-Hicom Bhd, Frontken Corp Bhd and Chemical Company of Malaysia Bhd,” it said.

Meanwhile, on the breweries and tobacco, HLIB Research does not expect an increase in excise duties as this would only worsen the incidence of illicit trade which is estimated at 40-50% for the former and 63% for the latter.

“Instead, we believe the government will try to clamp down on illicits to boost excise duty collection.

“Likewise, we also do not foresee a gaming tax hike for both the numbers forecast operators (high illegal operators) and casinos (heavy capex incurred for GITP),” it said.  

The research house also does not envisage an increase in orporate tax (cut from 25% to 24% in Budget 2015) as this may prompt upward price pressure from producers which would be counterintuitive to why GST was ab olished in the first place.

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