KUALA LUMPUR (Jan 2):  Kenanga IB Research said Malaysian equities are set for a better year in 2020 with the resumption of earnings growth after a 2-year hiatus.

In a strategy note today, the research house attributed this to subsiding external risks, recovering commodity prices, the anticipated revival of mega infrastructure projects and finally, to the positive impact of trade diversion on investments and exports.

Kenanga Research said the recently concluded 3QCY19 corporate results point to the arrest of earnings decline with a turnaround in subsequent quarters starting to show.

It said having fallen 5% since the start of the year, the valuation for the FBMKLCI looks appealing now trading as it is on a 12-month forward PE of 15.7x which is below both the 5-year and 7-year averages.

“With forward dividends looking intact, its dividend yield of 3.8% now exceeds the 10-year Malaysian Government Securities yield of 3.4% - an occurrence last observed 6 years ago.

“Our end-2020 bottom-up target level for the FBKLCI is 1,712, which happens to coincide with our top-down target derived by applying at 15.9x PE on 2021 EPS,” it said.

The research house advised investors to Overweight cyclicals (technology and plantation) and stay with the banks.

“Our top picks for 1QCY20 are Malaysia Airports Holdings Bhd (OP; TP: RM9.90), Bermaz Auto Bhd (OP, TP: RM2.65), CIMB Group Holdings Bhd (OP; TP: RM6.45), Gamuda Bhd (MP, TP: RM3.90), Genting Plantations Bhd (OP, TP: RM12.10), Kuala Lumpur Kepong Bhd (OP; TP: RM32.90), Malayan Nbanking Bhd (OP; TP: RM9.70), Malaysian Pacific Industries Bhd (OP; TP: RM14.00), Padini Holdings Bhd (OP, TP: RM4.00) and Pestech International Bhd (OP; TP: RM1.75),” it said.