World Bank president Robert Zoellick warned last Saturday the world economy is stepping into a “new danger zone” as growth slows and investor confidence weakens.
In the US, the latest jobs data showed zero jobs growth in August and raised the prospect of another recession.
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| AFG’s scalable domestic franchise and non-interest income traction will support earnings growth, says HwangDBS Vickers. |
Analysts downgraded their outlook for the economy and the stock market in the face of these headwinds. HwangDBS Vickers Research said with the slowdown in economic growth, there could be a risk to its earnings projections.
“Collectively, net profit for our universe was cut by 4.6% for 2011 and 2.8% for 2012, weighed down by disappointments for several large-cap stocks. In the last four quarters, we saw upgrades for our 2011 earnings,” it said.
The research house said with the cuts, its stock universe earnings growth is 10.9% for 2011 and 14.9% for 2012.
The research house said following the reduction of the earnings for the stocks under its coverage, its year-end FBM KLCI target is lowered to 1,520 (14 times 2012 earnings) from 1,730.
“In a scenario of heightened risk aversion, we see support at 1,370 (+0.5 standard deviation book value or 1.9 times book). The mean multiple (1.77 times book) would imply 1,305 for the KLCI or 10% lower than current values,” it said.
HwangDBS Vickers said in view of the slowdown, it would expect the government to push ahead with infrastructure project awards. “As such, we remain keen on the construction sector with IJM Corp Bhd, Gamuda Bhd, WCT Bhd and Malaysian Resources Corp Bhd as our picks, although high foreign shareholdings could result in high share price volatility,” it said.
The research house said it continues to like names with good domestic drivers and reasonable valuations such as Boustead Holdings Bhd (eight times forward earnings, 7% yield) and DRB-Hicom Bhd (seven times earnings, 0.8 times book).
HwangDBS Vickers said Alliance Financial Group Bhd (AFG) is the cheapest banking stock in its coverage. It believes AFG’s scalable domestic franchise and non-interest income traction will support earnings growth and returns on equity expansion.
Among the stocks which could see trading interest today are Sime Darby Bhd following its proposed acquisition of a 30% stake in Eastern & Oriental Bhd (E&O) which was reported to be 60% above market prices.
Also in focus will be Masterskill Education Group Bhd (MEGB), AirAsia Bhd, Salcon Bhd and plantations.
MEGB shares tumbled last Friday, losing 14 sen or 10.6% to RM1.18 after it posted lower earnings of RM11.6 million for the quarter ended June 30, compared with RM22.4 million a year ago.
AirAsia saw the Employees Provident Fund (EPF) Board continue to raise its stake in the low-cost carrier, with the latest acquisitions involving nearly 10 million shares. The EPF bought 4.28 million shares on Aug 25 and 5.72 million shares the next day.
The latest acquisitions saw the EPF increasing its shareholding to 346.05 million shares or 12.47%.
Salcon secured a RM20.4 million sub-contract from Octagon Engineering (M) Sdn Bhd to upgrade and repair works in Sungai Chukai, Terengganu under the Chukai and Kemanan flood mitigation project.
The contract is for 18 months from September 2011 to February 2013. Salcon expects the project to contribute positively to its earnings for FY12 ending Dec 31.
Plantations could see extended trading interest on firmer crude palm oil prices but investors should expect profit-taking after the strong gains last Friday.
The Edge weekly, meanwhile, reported the recent reverse takeover of R and A Telecommunication Group Bhd by KZen Solutions Bhd has prompted one of its peers to follow suit.
The latest reverse takeover involves the injection of Instacom Holdings Bhd, a turnkey design and engineering solutions provider for telecommunications networks, into ACE Market-listed I-Power Bhd.
Written by Joseph Chin of theedgemalaysia.com
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