PETALING JAYA: Hong Leong Investment Bank (HLIB) Research said its strategy to seek high dividend yielders remains unchanged and the recent market sell-down further solidifies the need to stay defensive.
The FBM KLCI has skidded to its lowest level since late-2016 to close at 1,622.07 points last Friday following news of Malaysia’s possible removal from the World Government Bond Index (WGBI).
Besides high yielders, the research house said, investors can look out for selective exporters (weakening ringgit), while those looking for rebound plays can consider “beta oversold” stocks.
“For the yield angle, we like selective REITs (IGB REIT and MQ REIT), Maybank for large cap liquid yield, BAuto (strong earnings growth), Taliworks (resolution of Splash water deal) and LiiHen (export play).
“Also, our earlier view for a sequentially weaker ringgit in Q2 vs Q1 remains unchanged (-1.4% thus far into Q2). In this regard, we like Top Glove and recently also upgraded our rating on Hartalega to buy.”
HLIB Research said the only slight change to its second quarter 2019 (Q2’19) strategy is that it is turning warmer on construction in view of pump-priming resumption.
“While the sector remains a neutral (albeit with a positive bias), we think there could be plays on laggards such as Kim Lun and Hock Seng Lee.”
In light of the market weakness, the research house screened its coverage to identify which socks have been oversold year-to-date versus the FBM KLCI on a beta adjusted basis for possible bottom nibbling ideas.
“Stocks that have been oversold by more than 5% on a beta adjusted basis that we have buy ratings include Hartalega (oversold by -18.5%), Pharmaniaga (-17.8%), Top Glove (-17.6%), IOIPG (-10.2%), AirAsia (-8.8%) and Homeritz (-5.6%).”
HLIB Research is maintaining the FBM KLCI earnings growth forecast of 2.1% for 2019 and 4.5% for 2020, while the FBM KLCI target is 1,710 points.
Meanwhile, the research house said the emphasis by the government on pump priming the country’s economy is welcome news.
“While economic expectations have been lowered, the silver lining is that pump priming is being resuscitated.”
After renegotiations, major infrastructure projects, MRT valued at RM30 billion, LRT3 at RM16 billion are expected to resume construction by the middle of this year and, most recently, the East Coast Rail Linkhas been resuscitated at a lower price of RM44 billion and a higher local content of 40%, it noted.
