MarketWatch Fuel price hike seen positive for market sentiment, Tenaga and properties.

MarketWatch Fuel price hike seen positive for market sentiment, Tenaga and properties.
Business & Markets 2013
Written by Ho Wah Foon of theedgemalaysia.com
Tuesday, 03 September 2013 14:14

KUALA LUMPUR (Sept 3): CIMB Equity Research sees the increase in fuel price as positive for the economy and market sentiment, as well as for TENAGA NASIONAL BHD [] and the property sector.

Last night, Prime Minister Datuk Seri Najib Razak announced price hikes for RON95 petrol and diesel by 20 sen a litre and the delay of several public-sector projects, except for the MRT2 and MTR3 projects.

He said the fuel price increase will save the government RM1.1 bllion in subsidies for the rest of this year and a further RM3.3 billion annually, which could help address the narrowing current-account surplus.

“We view positively the government's decision to raise petrol prices and proceed with MRT 2 & 3 while deferring projects with high import content. This should help assuage concerns over the budget deficit and narrowing current-account surplus.

“The property and CONSTRUCTION [] sectors should be big winners while the likelihood of tariff adjustments for Tenaga has increased,” wrote Terrence Wong, CIMB’s the head of research.

Wong sees these government measures as positive for the economy and the stock market, as these have come on the back of several negative developments.

Recent news that impacted the stock market negatively include Fitch Ratings’ downgrade of its outlook for Malaysia due to the high government debt and budget deficit, the US Federal Reserve's upcoming tapering moves and Malaysia's weaker-than-expected 2Q GDP growth and a steep narrowing of its current account surplus.

“These macro concerns are major overhangs for the stock market and any moves to address them, though negative for individual sectors and stocks from a bottom-up perspective, are nonetheless positive,” wrote Wong in his research report at noon today.

“The measures are evidence of the political will to bite the bullet and get the subsidy rationalisation programme back on track after a lull of 1-2 years in the lead-up to the 13th general elections,” he added.

Wong opined property developers should be winners as PROPERTIES [] are seen as inflationary hedges. This was the experience after the big petrol price hike in 2008.

The construction sector can also be a winner as reaffirmation of MRT 2 & 3 will be a big relief.

Tenaga should also be a winner as the chances of an electricity price hike and tariff pass-through formula have increased now, Wong elaborated.

He said while many other sectors could be losers, the net impact could be renewed confidence in Malaysia's economic outlook.

“We remain positive on Malaysia and keep our end-2014 KLCI target of 1,920 points (15.9x P/E or 10% premium to its 3-year MA). Market catalysts include a stabilisation of regional markets and additional responsible fiscal policies,” said the CIMB report.

“Although petrol price hikes are historically negative for the market, this time should be different as investors are far more concerned about fiscal discipline. The move should go a long way in alleviating their worries,” added the report.

The benchmark FBM KLCI rose 7.18 points or 0.4% to end at 1724.74 at noon break today.

CIMB said its preferred sectors are O&G, construction and property. It has highlighted Tenaga, GAMUDA BHD [] and MAH SING GROUP BHD [] as its picks.

At noon break, Tenaga rose 24 sen or 2.8% to RM8.91 per share as the third top gainer.

Gamuda share was up 4 sen or 0.9% at RM4.52 and Mah Sing climbed 2 sen or 0.9% to RM2.24.