AGAINST all odds, the third quarter of financial year 2020 results season has finally delivered an above expectation and consensus-beating set of results.
But expect the stock market to chart an uneven recovery trend in 2021 which mainly reflects the current weak economic trends and uncertainties to banks’ non-performing loan trends.
“This comes as the government-mandated loan repayment moratorium for the B40 income earners and banks’ restructuring and rescheduling programmes expire in mid-2021,” projected UOB Kay Hian Research head Vincent Khoo.
Nevertheless, after various western biotech companies announced encouraging preliminary efficacy and safety data of their COVID-19 vaccines in their respective Phase 3 clinical trials, the market sentiment has been positive.
“However, many domestic-oriented businesses continue to be under duress due to poor domestic consumption trends,” observed Khoo in a strategy note.
“The potential resultant business failures and consolidation in first half of 2021 could also temporarily dampen investment momentum.”
However, alongside the optimism of an effective COVID-19 vaccine dispensation in 2021, things are looking up.
In this regard, the research house is revising upwards its 2020 earnings forecasts of the 30 FBM KLCI constituents by 10% (mainly from upgrade in the glove sector).
For 2021, the research house is raising its net profit forecast by 17% and 21% for its stock universe and the FBM KLCI respectively.
“The forecast upgrades are broad-based as 13 of the 27 sectors/sub-sectors under our coverage experienced 2020 earnings upgrades, while automobile, healthcare and technology (software) bore the brunt of earnings downgrades,” noted the research house.
A key investment theme for 2021 is the reopening play where Khoo and team foresee rising momentum for value stocks and high dividend yielders, and continuing momentum for selected exporters (electrical & electronic [E&E], manufacturing, furniture).
In this regard, UOB Kay Hian Research has an “overweight” stance on the consumer, gaming, banks (despite an uneven recovery), E&E and manufacturing-related sectors.
Its end-2021 FBM KLCI target is 1,640 which values the market at 14.9 times its 2021F price-to-earnings ratio which is conservatively lower than the latest bottom-up target of more than 1,700.
In the list of the research house’s top picks are Axiata Group Bhd, Genting Malaysia Bhd (GenM), Inari Amertron Bhd, Mr D.I.Y Group (M) Bhd, MY E.G. Services Bhd, Press Metal Aluminium Holdings Bhd and Public Bank Bank as well as mid-caps British American Tobacco Malaysia Bhd, Pentamaster Corp Bhd and Supercomnet Technologies Bhd.
“Among these, we foresee good near-term momentum for BAT Malaysia, GenM, MYEG, as well as Astro Malaysia Holdings Bhd, Top Glove Corp Bhd, Supermax Corp Bhd and Genting Bhd,” added the research house. – Dec 2, 2020
