September 02, 2010

Bursar KL Stocks are No Longer Cheap!


Most leading Malaysian firms, led by the big banks, posted robust growth in profits in the three months ended June 30, with quite a few exceeding forecasts.
But a surge of funds flowing into the market in recent months means stock valuations on a price/earnings basis are not getting any cheaper.

In fact, stocks remained expensive compared to their historical price/earnings ratio (PER) average, according to a report by RHB Research Institute yesterday.

“The stronger trading values of the top 100 stocks on a one-month and three-month basis suggests that investors are already looking beyond the relatively expensive 2010 PER valuation,” it said.

RHB Research calculated that local stocks are priced at 16.7 times based on projected earnings this year. This was higher than the post Asian financial crisis mean PER of 16 times and one-year forward PER value of 15 times.
The firm’s forecast put the PER for 2011 at 14.7 times and a normalised earnings growth of 14.5%.

“Our corporate earnings forecast have largely taken into account the anticipated slowdown in the Malaysian economy to 5% in 2011 from 7.3% in 2010,” it said.

The firm said banks and plantation companies attracted the biggest inflow of funds in August. There was a net inflow of US$308mil into local equities from foreign funds in July.

CIMB Research, in a report dated Aug 26, predicted foreign funds to remain as net buyers in August as the FTSE Bursa Malaysia KL Composite Index (FBM KLCI) has scaled to new highs. The ringgit has also reached a 13-year high against the US dollar.

“The excellent performance in August was driven by fundamentals, including the excellent results by blue chips like banks, Axiata Group Bhd and Genting Bhd,” OSK Research’s head Chris Eng said in a note yesterday.

He advised investors to keep buying big capitalised stocks and listed down the firm’s top picks as Malayan Banking Bhd, CIMB Group Holdings Bhd, Axiata, Tenaga Nasional Bhd and SP Setia Bhd.

Shares in Maybank jumped 10 sen yesterday to a new 30-month high of RM8.49, lifting its market capitalisation to RM60bil.

Rival CIMB was unchanged at RM7.80, with its market value standing at RM57.3bil. Shares in Maybank had gained 10.8% over the past two weeks, faster than CIMB’s 6.4% rise over the same period.

“We expect growth in the banking sector to continue to outperform other sectors,” said JF Apex Securities head of research Norhashmilaidi Hashim.

The FBM KLCI climbed 9.47 points, or 0.7%, to 1,431.96 points yesterday. The index had gone up 4.5% over the past two weeks.

So are you fully invested?

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