KUALA LUMPUR (May 31): Analysts relayed mixed outlooks for their FBM KLCI targets after Prime Minister Tan Sri Muhyiddin Yassin announced a 14-day total lockdown from tomorrow.

Hong Leong Investment Bank (HLIB) cut its previous KLCI target of 1,740 points to 1,660, using the first movement control order (MCO 1.0) as a cue on potential market reaction.

“To reflect the near-term perils bought about by this ongoing “on/off” economy, we cut our price-earnings (P/E) target from 17.3 times (five-year mean) to 16.5 times (-0.5 standard deviation), consequently lowering our KLCI year-end target to 1,660 (from 1,740).

“We note that our 2021 KLCI earnings per share (EPS) forecast is already 14.8% below the consensus, which should help limit relative downside. Pending completion of the ongoing May results season, our top picks and 2021 KLCI earnings growth forecast (of 23.9%) are unchanged,” said HLIB in a note today.

Meanwhile, Kenanga Research maintained its KLCI target of 1,710 points, citing that lockdown restrictions will be progressively eased subject to the Ministry of Health’s (MoH) assessment of progress made in curbing the infection.

“Assuming this being the case, the economic impact should be less adverse than last year’s MCO 1.0, which lasted 46 days from March 18 to May 3 before transitioning to the conditional movement control order (CMCO) and recovery movement control order (RMCO).

“With additional precautions taken and vaccination progressing more rapidly, chances are better that the worrying rate of infection can be brought under control, and we should see this lockdown easing as we draw closer towards 2H21 (the second half of 2021).

“We stick with our 1,710 year-end target for the KLCI,” said the research house.

Along the same lines, CGS-CIMB also maintained its KLCI target of 1,699 based on an expected milder market reaction due to ramped-up inoculation plans. 

“We expect the market impact of the latest restrictions to be more muted compared to the MCO 1.0, when the KLCI plunged 5% on March 16, 2020, given the availability of Covid-19 vaccines and plans to ramp up daily vaccination rates in 2H21, strong export sales by the tech, gloves and commodities sectors, robust market liquidity and low interest rates.

“However, this news will dampen near-term sentiment for the recovery play sectors, auto, property and retail, construction, REIT (real estate investment trust) and tourism-related plays given concerns over earnings risks in the near term, prompting investors to switch to defensive names least affected by the current MCO until Covid-19 cases subside or there is a significant pickup in the vaccination rate.

“We keep our KLCI target of 1,699 points pending the end of the current results season,” said CGS-CIMB.

At the noon break today, the FBM KLCI settled 15.99 points lower at 1,578.45.