KUALA LUMPUR (June 3): CGS-CIMB Research has raised its 2022 FBM KLCI target to 1,647 points (from 1,622), and named Genting Malaysia Bhd (GenM), MR DIY Group (M) Bhd and RHB Bank Bhd as its new top picks. 

In a strategy note on Thursday (June 2), the research firm said it expects corporate earnings for the second quarter of 2022 to benefit from high prices of commodities such as crude palm oil (CPO) and crude oil due to the ongoing Russia-Ukraine war and higher consumer spending because of pent-up demand as well as the Hari Raya festival.

“Following our latest earnings revisions to reflect a higher CPO price assumption and the overnight policy rate hike, we now estimate the KLCI’s core net profit to grow by +1%/+11% in 2022/23 (versus previous forecasts of -2.4%/+9.2%). Excluding the bank constituents of the KLCI, we project the KLCI's 2022/23 earnings per share growth at -2.4%/+2.4%. 

“We raise our end-2022 KLCI target to 1,647 points based on a 12-month forward price-earnings (P/E) of 13.5 times (two standard deviation below its historical three-year moving average mean P/E of 16 times). The upgrade in our 2022 KLCI target is to reflect the positive earnings revisions, which more than offset the lower P/E target,” said CGS-CIMB analysts Ivy Ng Lee Fang and Nagulan Ravi.

CGS-CIMB has "add" calls for GenM, MR DIY and RHB Bank with target prices of RM3.40, RM4, and RM7.70 respectively. 

“We add MR DIY as it is likely to benefit from the down-trading trend due to rising inflationary pressures. GenM is our preferred pick for the international border reopening theme. RHB Bank is our pick as a recovery and rate hike beneficiary as it offers a higher upside compared to Hong Leong Bank Bhd,” said the analysts. 

The analysts added that they expect the KLCI to continue to trade in the range as the market weighs the positives coming from a recovering economy against a potential margin squeeze due to the inability to pass on rising costs to consumers. “The downside is supported by an inexpensive 13.9 times 2022 P/E relative to its historical P/E as well as dividend yields of 4.1% estimated for 2022."