KUALA LUMPUR (Dec 3): AmInvestment Bank has downgraded its end-2019 FBM KLCI target to 1,570 points based on 16.5x its revised 2020F earnings projection, from 1,680 points based on 17x 2020F earnings projection previously.
In a strategy note Dec 2, AmInvestment said the just-concluded 3Q2019 quarterly results showed marginal improvement over the previous quarter.
“While none of the FBM KLCI component stocks under our coverage actually beat our projections (as in the previous quarter), those thatmissed our forecasts were actually reduced to seven (from eight previously).
“Having reflected earnings changes, we revise down our projected FBM KLCI growth rate in 2019F to -5.5% (from -4.9% prior to the results) and in 2020F to 7.5% (from 7.9% previously),” it said.
Having said that, AmInvestment explained that historically, December has been a good month for the local stock market with the FBM KLCI rising during nine occasions over the last 10 years with gains ranging from 0.6% to 4.8%.
“However, this time around, we believe year-end window dressing activities, if any at all, are likely to be weighed down by the subdued sentiment towards the local stock market, which has been made worse by the recent de-rating of the national utility company Tenaga Nasional Bhd (that carries close of a 10% weighting in FBM KLCI) on the heels of an additional RM4 billion tax assessments received from the Inland Revenue Board.
“At 16.5x, the FBM KLCI’s valuation is at a 1.5x multiple discount to its 5-year historical average of about 18x,” it said.
AmInvestment expects the market will do better in 2020 amidst low expectations.
“We are projecting an end-2020 FBM KLCI target of 1,670 points based on 17.5x our revised 2020F earnings projection (which is still at a 0.5x multiple discount to its 5-year historical average of about 18x),” it said.
The investment bank said catalysts for a market rerating in 2020 could potentially come from (i) increased appetite for risk assets, particularly, emerging market equities including Malaysian equities; (ii) a change in Malaysia’s perceived country risk premium following significant political events; (iii) a play on the ringgit.
Commenting on the 3Q2019 results, AmInvestment said none of the FBM KLCI component stocks under its coverage actually beat projections.
“If there was any bright spot at all, it was that all the FBM KLCI weighted banks actually met expectations,” it said.