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KUALA LUMPUR (Sep 14): Following recently seen consolidations, Rakuten Trade Sdn Bhd expects the FBM KLCI to trade higher in the future and forecast it to close at 1,580 points by the end of 2020.
The research house said the year-end target was based on 15.5 times its price-to-earnings ratio (PER) for calendar year 2021 (CY21). At noon, KLCI was up 1.18% or 17.55 points at 1,507.67. Since the end of July, the FBM KLCI has fallen 6% from 1,603.75.
“After market consolidation, I think … continued interest in glove counters should be a positive for the market,” said his head of research Kenny Yee at a virtual press conference on the market outlook for the fourth. quarter of this year.
He expects the rubber glove sector to continue to be the center of attention as the world remains engulfed by Covid-19 fears this year with new coronavirus cases continuing to rise globally.
Furthermore, he expects ample liquidity to continue to fuel the market’s bullish momentum in the coming months, especially from retail share.
“The rubber glove fever has played an important role in attracting retail investment [into the local bourse]. This, coupled with the low-interest regime and the sudden increase in interest in stock trading among the younger generations, has also improved liquidity in the stock market, “he said.
In terms of cash flow, retail investors hit their biggest influx this year so far in July with RM2.05 billion of funds flowing into the stock market, significantly more than cash flows of RM1.25 billion recorded in June.
So far this year (YTD), retail investors posted the largest inflow of funds at RM11.18 billion, compared to RM9.77 billion from local institutional investors.
While foreign funds have sold nearly RM21 billion over the same period, the equity stake is at a multi-year low of 12.1% from 20% in 2017. On a positive note, Yee said the stake Foreign remaining in Bursa Malaysia represents a low possibility of another massive net outflow.
When asked if the expiration of the six-month loan moratorium at the end of September will have a significant impact on the market, Yee said that he does not anticipate this event to have a major impact on the market, as he expects retail investors continue to boost the buying momentum in the local stock market.
The share of retail investors in the local market has increased this year so far this year and peaked in August at 43.18%, above its March low of 25.97%.
Overall, he noted that retail share has increased by 132% compared to the average in 2019. As a result, the average daily trading volume currently observed on the local exchange averaged around 7 billion shares, higher in compared to 2.5 billion shares last year.
Yee believes that, in the future, the rotation game will continue in Bursa. In addition to the rubber glove sector driving the market, Yee is also positive in the construction and plantation sectors that support the local stock market.
“Although we have not seen any interest in these two [sectors], in the future once news flows about projects and contracts being implemented [start], which should see more participation in the construction sector.
“For plantations, the continuing dispute between the US and China will only push China to buy palm oil instead of [soybean oil]. This should be a positive catalyst for CPO prices, ”Yee added.
YTD, both the Bursa Construction Index and the Plantation Index were down 24% and 9.3% respectively. Like last Friday, the Construction Index closed at 159.04 points from 209.20 on December 31, 2019, while the Plantations Index closed at 7,007.88 points against 7,733.37 points.
On the corporate earnings growth front, Yee, however, expects it to contract 20.6% (down from a previous forecast of -3.9%), driven mainly by the negative performance of the banking sector.
However, he expects corporate profits to rebound strongly in 2021, forecasting growth of 35.3% (up from 14.2% previously), driven by growth in the manufacturing sector, particularly in glove manufacturers from rubber.
As such, he believes that the KLCI FBM will be driven by improving earnings growth and should test the 1,670 level in 2021, which is based on 16.5 times CY21 PER.
Rakuten’s best picks
Rakuten Trade’s top foundations picks are integrated systems company AHB Holdings Bhd’s office furniture provider, D’nonce Technology Bhd engineering solutions provider, and Supercomnet Technologies Bhd (Scomnet), a wire and cable manufacturer for medical devices, home appliances, consumer electronics and automotive. Markets.
All three actions are considered beneficiaries of the Covid-19 era.
For AHB, Rakuten Trade said that its latest products, namely “Covid Panels” and “SpaceCom Medical Hubs”, will benefit from the new normal within office space and medical centers. He anticipated that the group is likely to make record profits in fiscal year 21 as demand for these products will increase as we are entering the era of Covid-19 prevention.
Similarly, the research house expects D’nonce to achieve record profits in fiscal year 21, as the group’s packing boxes are used by major glove manufacturers.
At Scomnet, he said that his medical cables will see strong earnings growth due to improving demand amid the Covid-19 pandemic. She expects the group to achieve its strongest performance yet on record with supercharged growth in earnings per share of + 59% in fiscal 2020 and + 68.3% in fiscal 21.
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