ALTHOUGH the imposition of the total lockdown or full movement control order (FMCO) measure (from June 1-14) came as a negative surprise, there is no reason to expect the worst from the stock market at this juncture.
CGS-CIMB Research contended that the need to lower its price-to-earnings (PE) valuation for the market is not necessary given the market is forward looking and will price in the recovery from the current lockdown once the COVID-19 vaccination programme picks up – likely in June or July (based on vaccine delivery schedule).
“Also the Government remains confident that the country can achieve herd immunity by end-2021 based on the latest announcement by the Prime Minister on Sunday (May 30),” opined head of research Ivy Ng Lee Fang in an investment strategy update.
“We also noted that the FBM KLCI is currently trading at 14 times which suggests that the market may have priced in some of the potential earnings risk relating to the on-going movement control measures.”
All-in-all, CGS-CIMB Research raised its end-2021F FBM KLCI target slightly from 1,699 points to 1,709 points to reflect potential earnings risks in 2H 2021F due to political instability.
“If Malaysia makes good progress to vaccinate 70% of its targeted population by end-2021 to achieve herd immunity, we could re-rate the market which currently trades at 2 s.d. (standard deviation) below historical mean,” projected the research house.
“However, if the country is not able to rein in the high COVID-19 cases, we see near-term downside risk of up to 123 points (or -1 s.d. discount to current P/E).”
CGS-CIMB Research’s top picks list for the market now includes MISC Bhd, Malaysia Airports Holdings Bhd, Sime Darby Bhd, Malaysian Pacific Industries Bhd, Pentamaster Corp Bhd, Malayan Banking Bhd, Petronas Gas Bhd, Kossan Rubber Industries Bhd, Freight Management Holdings Bhd, Duopharma Biotech Bhd and Velesto Energy Bhd.
On the other hands, the research house has removed from its list DRB-Hicom Bhd, Petronas Chemicals Group Bhd, UMW Holdings Bhd, Hartalega Holdings Bhd, EITA Resources Bhd, Karex Bhd, Pharmaniaga Bhd and WCT Holdings Bhd. – June 3, 2021
