Kenanga: Budget neutral to positive on equity market

by **Cals** Mon 28 Oct 2013, 13:41

Business & Markets 2013

Written by Jeffrey Tan of theedgemalaysia.com

Monday, 28 October 2013 11:37

KUALA LUMPUR (Oct 28): Kenanga Research said Budget 2014 should have a neutral-to-positive impact on the local equity market and it added the budget announcements are mostly within expectations.

The research house, however, said a correction from the current level is still likely as the discount between FBM KLCI to its consensus index target of 1,860 points is currently narrowed to below 3%.

It also said the forward price earnings ratio (PER) of FBM KLCI is now traded greater than 17 times.

Kenanga head of research Chan Ken Yew said his 12-month index target remains at 1,855 points backed by 9.7% earnings growth in FY14, which implies a FY14 PER of 17.25 times.

“These scenarios mentioned above could suggest a temporary peak for FBM KLCI in the absence of index target and earnings estimates upgrades,” said Chan.

“However, as the fourth and first quarters are seasonally stronger, the market should remain supportive. Hence, our buying-on-weakness strategy.”

He said as he has anticipated some of the Budget measures, his top 10 closely watched stocks remained mostly unchanged, except for UEMS Sunrise Bhd (outperform, TP: RM3.05) being replaced with IJM Land Bhd (outperform, TP: RM3.60).

Meanwhile, Chan said the Goods & Services Tax (GST) implementation could be positive to the local equity market.

“We expect more foreign inflow into both equity and debt markets. Besides, market could stage a rally before the actual date of GST implementation, judging from the Australian and Singaporean experience,” said Chan.

“While news flow on corporate tax cut could potentially spur market sentiment, we are only cautiously optimistic as the tax cut will only be implemented in 2016.”

He said that theoretically, a 1% reduction in corporate tax could boost FBM KLCI by approximately 20 index points.

Additionally, Chan said he believes the budget announcements’ impact on most of the sectors is generally ‘neutral’, but added, “However, we do see some sectors with positive tone.”

He listed the sectors, namely building materials & constructions, education, logistic & transportations including aviation, multi level marketing, and telecommunications especially Telekom Malaysia Bhd.