KUALA LUMPUR (May 9): JP Morgan, in its post-election Malaysian strategy report today, recommended investors to “keep buying” its Malaysian Domestic Nine stocks for exposure to domestic demand and growth.
These nine stocks are: AMMB, Axiata, Berjaya Sports Toto, CIMB, Dialog, Gamuda, IJM Land, KLCC and Media Prima.
It said the Malaysia Domestic Nine index has outperformed the market, rising 19% since Mar 22 vs. FBMKLCI’s +9.2%.
“Other stocks that we believe are likely to continue to react positively to the removal of elections risk premium are: UEM Land, IJM, WCT, SAKP, Tenaga, Genting Malaysia, SP Setia and Bursa Malaysia,” it added.
The strategy report, written by three analysts led by Hoy Kit Mak, noted the local stock market has risen 4.7% following Barisan Nasional’s (BN) win in the 13th general election last Sunday.
But it said the key benchmark index FMBKLCI is still lagging ASEAN peers, with playing catch-up seen.
With the opposition contesting the elections outcome and planning mass protests, JP Morgan said there will be increased volatility that might provide a buying opportunity.
The team of analysts opined that the momentum for growth for the local equities market is within the domestic economy and the projects planned ahead.
They said rotation from “safe sectors” to underperforming “domestic-led growth” will continue to be a profitable trade.
“We expect Street earnings upgrades for construction, banks (exposed to the capex cycle), property, oil and gas, gaming and media. Keep buying our Malaysia Domestic Nine for exposure to domestic demand,” said the report.
The JP Morgan analysts see key drivers as coming from domestic demand, robust private investments growth, ample domestic liquidity, resumption of major public infrastructure spending, property sector upcycle and Petronas’ capex spending.
The investment house expects 17.4% growth for construction, 20% growth for oil & gas, 11% growth for property developers, 12.7% growth for REITs and property investment and 11% growth for telecommunications.
On valuation, JP Morgan said FBM KLCI is trading at a 2014E P/E of 14.7x vs. its historical average of 15x. The P/E premium for MSCI Malaysia is at 26% to APxJ vs. a historical average of 13.2%, it added.
While noting MSCI Malaysia earnings revisions have been on a downtrend since April 2012, JP Morgan said a post-election turning point is “probable”, as major investments, capex and discretionary spending could have been held back.