KUALA LUMPUR (June 28): Kenanga Research has lowered its end-2022 FBM KLCI target to 1,610 points (from 1,670 points) based on 16x 2022F earnings projection (-4.7%) against a backdrop of a considerably more aggressive monetary tightening by major policymakers globally in recent months.

In a strategy note on Tuesday (June 28), the research house said under the current sustained high inflation scenario, investors should seek refuge in stocks of companies with strong pricing power.

“We acknowledge that these are rare in our market, but we believe there are no lack of “near-proxies” for pricing power, which we define as “companies that are able to maintain their margins despite the rising cost pressures”.

“We see them in: i) service-based industries that have kept wage pressures at bay, i.e. banks and telecommunications players; ii) suppliers to multinational companies with pricing power, predominantly in the tech/consumer electronics space (which means there are less cost pressures to be passed on along the supply chain), i.e. local players in the fields of outsourced semiconductor assembly and test (OSAT), automated test equipment (ATE) and electronics manufacturing services (EMS); and iii) providers of goods/services with a low “price elasticity of demand” such as private healthcare,” it said.

Kenanga said it also likes commodity producers, i.e. strong names in the plantation and oil and gas space as it expects CPO and crude oil prices to stay elevated in 2H22.

“We hold the view that the time is about right for investors to position themselves in construction stocks ahead of the 15th general election (GE15).

“Our overall top picks are Malayan Banking Bhd, Petronas Chemicals Group Bhd, IHH Healthcare Bhd, Kuala Lumpur Kepong Bhd, RHB Bank Bhd, Digi.Com Bhd, Inari Amertron Bhd, Gamuda Bhd, Alliance Bank Malaysia Bhd and PIE Industrial Bhd.

“Our top syariah picks are Petronas Chemicals, IHH, KLK, Digi, Telekom Malaysia Bhd, Inari, Gamuda, Syarikat Takaful Malaysia Keluarga Bhd, Boustead Plantations Bhd and PIE, “ it said.