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PETALING JAYA: As the third quarter earnings season came to a close, fueled by a sequential V-shaped rally, analysts have raised their FBM KLCI targets for late 2020 with even higher estimates for next year. .
Several research houses expect Bursa Malaysia’s leading index to exceed the psychological level of 1,700 points and even 1,800 points in 2021.
The last time FBM KLCI closed above 1,700 points was in February 2019. Despite the market rally earlier this year, the index has notably struggled to stay above the 1,600 level.
CGS-CIMB increased its 2020 year-end FBM KLCI target by nearly 100 points to 1,628 points. It also introduced a goal by the end of 2021 of 1,732 points.
TA Securities Research raised its FBM KLCI year-end goal for 2020 by 60 points to 1,610 points. Looking at the end of 2021, the 30-share index is forecast to hit 1,770 points.
, Hartalega Holdings Bhd, Genting Bhd and Petronas Chemicals Group Bhd“Said CGS-CIMB Research.” src = “https://apicms.thestar.com.my/uploads/images/2020/12/03/959138.jpg” onerror = “this.src =” https://cdn.thestar.com.my/Themes /img/tsol-default-image2017.png “” style = “height: 412px; width: 618px” />“We now expect FBM KLCI’s core net earnings in 2020 to decline 14% compared to previous negative 16% as we adjust for earnings improvements at Top Glove Corp Bhd, Hartalega Holdings Bhd, Genting Bhd and Petronas Chemicals Group Bhd. “, CGS-CIMB Research said.
Kenanga Research, on the other hand, has maintained its goal for the end of 2020 at 1,603 points, although it set the goal for the end of 2021 at 1,809 points.
Greater clarity in vaccine development and expectations of better corporate profits in the future were some of the key reasons for FBM KLCI’s higher goals.
UOB Kay Hian Malaysia Research said in a note that the Q3 2020 earnings season “finally delivered a set of good results that were above consensus.”
“Coupled with optimism for an effective dispensing of the Covid vaccine in 2021, we are being asked to increase earnings forecasts for 2020-2021 by 10% and 21% respectively,” he said.
However, the research house warned that the stock market would chart an uneven recovery trend in 2021, mainly reflecting current weak economic trends and uncertainties about banks’ non-performing loan trends.
“A key investment theme for 2021 is reopening, as we anticipate growing momentum for value stocks and high dividend yields, and continued momentum for select exporters (electricity and electronics or E&E, manufacturing and furniture).
“(We are) overweight in consumer, gaming, banking (despite uneven recovery), E&E and manufacturing,” said UOB Kay Hian Malaysia Research.
Meanwhile, CGS-CIMB Research believes that the expectation of a strong recovery of earnings in the first half of 2021 due to the availability of Covid-19 vaccines and increased liquidity due to increased public spending and low interest rates will likely they will maintain retail interest in the market. market.
Looking ahead, he said investors should position themselves in companies that would benefit from the recovery in the economy as the impact of the Covid-19 outbreak fades.
Commenting on the latest earnings season, the research house said the third quarter witnessed the strongest earnings revision rate in recent history, thanks to a higher rating of outstanding ones.
“Of the 130 companies we actively cover, the proportion of companies that performed above our expectations increased to 35% in the third quarter of 2020 (second quarter of 2020: 25%), while the proportion of companies that underperformed it fell to 31% (second quarter 2020: 36%), ”he said.
CGS-CIMB Research also noted that the third quarter saw a 102% quarter-on-quarter increase in corporate results due to the relaxation of the motion control order (MCO), which brought the recovery of business activities to around 70% for 90% of pre-Covid levels, excluding travel-related businesses.
In addition, the research house was positive about the fact that Malayan Banking Bhd was the first bank to declare an interim dividend for the third quarter of 2020 at 13.5 sen / share.
“Quarterly market earnings for the companies we cover grew year-over-year for the first time in eight quarters, primarily driven by higher earnings from glove makers, technology companies, plantations, and electronics manufacturing services.
“We now expect FBM KLCI’s core net earnings in 2020 to decline 14% compared to previous negative 16% as we adjust earnings from earnings at Top Glove Corp Bhd, Hartalega Holdings Bhd, Genting Bhd and Petronas Chemicals Group. Bhd.
“We expect corporate earnings to be mixed on a quarterly basis in the fourth quarter of 2020 as the sequential earnings recovery would be adversely affected by the reestablishment of the conditional MCO from mid-October to early December in major cities across the country.” , stated CGS- CIMB Research.
Meanwhile, MIDF Research said that the reported aggregate earnings of the 30 constituent stocks of FBM KLCI recovered to RM12.57bil in the third quarter of 2020.
“It registered positive growth both sequentially at 78.3% QoQ and 0.7% QoQ.
“After neutralizing the impact of non-operating items, the aggregate normalized growth in the third quarter of 2020 was sequentially higher at 86.1% quarter-on-quarter but lower year-on-year at negative 7%,” he said in a note.
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