THE market awaits a brand new daybreak in 2022.
After going via a 12 months of disappointing, or at greatest, combined consequence seasons, traders are betting for a rebound in company earnings this 12 months.
While the one-off Cukai Makmur or prosperity tax would dent earnings, notably for firms making chargeable incomes of greater than RM100mil, it might not derail the restoration momentum.
This is assuming no main lockdowns are re-introduced.
One might say that the restoration in enterprise actions and because of this, the company earnings, is already underway, utilizing the unemployment determine as a gauge.
In October 2021, the nationwide unemployment fee dipped to 4.3%, the bottom stage since April 2020. The variety of unemployed individuals dropped to 705,000 from 778,800 people in April 2020.
Business actions have picked up tempo in the ultimate three months of 2021 after the ban on interstate journey was lifted in October.
Economists anticipate the nation’s gross home product development to return to constructive territory in the fourth quarter of 2021, following a contraction of 4.5% in the earlier third quarter.
The momentum is predicted to speed up, with a stronger full-year development of 5.5% to 6.5% in 2022.
As for the equities market, analysts are additionally constructive on its efficiency this 12 months.
The benchmark FBM KLCI, which was the second worst performer amongst Asia’s key inventory change indices in 2021, is ready for a rebound.
Some analysts say the rebound may very well be gentle, whereas others say a robust uptrend in FBM KLCI is feasible.
Amid the constructive market outlook, specialists have highlighted how traders can decide the proper sectors to guess on for 2022.
Experts say traders ought to take into account sectors with beaten-down valuations or sectors that noticed operational interruption or decrease footfall in 2021.
In addition, different sectors that may be thought of are these benefitting from pent-up demand or delayed orders carried from 2021.
Overall, MIDF Research says all sectors, aside from glove manufacturing and plantation, are anticipated to see stronger mixture earnings in 2022. This relies on the shares beneath its protection universe.
The glove manufacturing and plantation sectors are forecast to register unfavorable earnings development in the upcoming monetary 12 months, primarily due to weakening common promoting costs of glove and decrease crude palm oil costs respectively.
Apart from these two sectors, it’s also value noting that analysts are usually impartial on the prospects of the property, building, actual property funding belief and telecommunication sectors, amongst others.
This, nevertheless, doesn’t imply that these sectors is not going to expertise a restoration in 2022.
Speaking with StarBizWeek, Areca Capital chief government officer Danny Wong says the 2 major themes for 2022 can be restoration play and development.
The restoration play sectors are people who ought to have recovered in 2021 however have been delayed due to the motion restrictions.
The prime restoration play sectors embrace banking, gaming, hospitality and consumer-related, amongst others.
As for the expansion theme, Wong says it consists of sectors which can be in line with the worldwide mega-trends over the subsequent three to 5 years.
Among such sectors are know-how, industrial merchandise and export-based.
“I’m positive on the market outlook. Because of the challenges seen in the past two years, companies have streamlined their operations, resulting in a low base for their costs.
“So, even with Cukai Makmur, they would be able to digest the additional cost as overall costs have been reduced.
“Product orders that should have been received and delivered in 2021 are also pushed to 2022 due to the previous lockdown. This would boost the sales volume this year,” says Wong.
Rakuten Trade head of analysis Kenny Yee expects the “real market rebound” to occur in the second half of 2022, as traders take cue from the projected stronger earnings in 2023.
StarBizWeek has compiled a few of the sectors that analysts and fund managers say are the most effective selections for 2022.
Areca Capital’s Wong says that banks’ low valuations in the intervening time is a key attraction for traders. With the restoration in the general financial system, banking shares are anticipated to carry out higher in 2022.
Meanwhile, Rakuten Trade’s Yee says that with the anticipated improve in the in a single day coverage fee (OPR) in 2022, banks’ earnings would additionally naturally enhance.
Echoing an identical stance, Hong Leong Investment Bank (HLIB) Research says that banks’ internet curiosity margin (NIM) will develop in the quick time period due to an rate of interest hike, given faster loans repricing versus deposits.
“On a full year basis, we estimate that every 25-basis-point OPR increase would widen sector NIM by five to six basis points which in turn, bump up the profit forecast by 4% to 5%.
“From our sensitivity analysis, Alliance Bank Malaysia Bhd and Bank Islam Malaysia Bhd would gain the most if interest rate rises, while Affin Bank Bhd and Public Bank Bhd are poised to benefit the least,” says HLIB Research, which is constructive on the sector.
MIDF Research says the sector’s outlook would stay shiny all through 2022, supported by the appearance of 5G know-how, growing smartphone cargo, emergence of digital options in enterprise and rising electrical automobile market.
“All in all, we are maintaining our positive stance on the sector given, through innovation and invention, this sector continues to benefit from digital proliferation and is now integrated into all other sectors such as healthcare, financial, real estate, logistics and manufacturing,” it says.
Kenanga Research says it stays bullish on the know-how sector because it continues to observe aggressive expansions amongst native and world semiconductor gamers. Its prime picks for the sector are Kelington Group Bhd, GHL Systems Bhd and Inari Amertron Bhd.
On the impression of Cukai Makmur on the know-how shares beneath its protection, Kenanga Research described it as “negligible”.
“Given that most of the technology companies under our coverage enjoy exemptions (such as pioneer status, investment tax allowance and reinvestment allowance) which will still be valid even with the prosperity tax implemented, we foresee a negligible impact of about 1% to 3% to our earnings forecasts.
“Such impact could be easily mitigated with initiatives such as an accelerated capital expenditure in the financial year of 2022,” it says.
HLIB Research, which has upgraded its view on the sector to “overweight”, says it’s a good reopening restoration play.
A restoration in promoting expenditure (adex) is predicted as enterprise actions decide up. Other segments reminiscent of newsprint, radio, occasions and out-of-home promoting are additionally doubtless to recuperate, following the easing of motion restrictions.
Similarly, Kenanga Research expects an improved adex outlook in 2022 because the stronger home demand would encourage extra promoting actions.
Meanwhile, MIDF Research believes that firms with conventional media companies reminiscent of Star Media Group Bhd would profit, ought to the fifteenth General Election (GE15) be known as in 2022.
“The GE15 could serve as a catalyst in driving up the adex for traditional media, namely publishing and broadcasting in 2022.
“We also foresee an upward trajectory in the home shopping and digital segments in tandem with the paradigm shift in consumer behaviour.
“Considering the healthy cash balance of the media companies, we do not discount any potential merger and acquisition exercises that may take place to expedite the transformation process of the media companies and to exploit market opportunities,” it says.
Areca Capital’s Wong and Rakuten Trade’s Yee are constructive on the gaming sector, anticipating it to be one of many outperforming sectors this 12 months.
Following enterprise interruption for probably the most a part of 2021 due to the motion restrictions, gaming-related firms reminiscent of on line casino and quantity forecast operators have as soon as once more seen growing footfall.
CGS-CIMB Research says on line casino operator Genting Malaysia Bhd has a greater earnings outlook than its dad or mum Genting Bhd, whereas quantity forecast operators (NFOs) provide excessive yields.
“Genting Malaysia is our top pick for Malaysian casinos due to its lower reliance on international tourism, while Magnum Bhd is our pick for NFOs as it has purer exposure to the strong cashflow generating NFO business and due to the potential monetisation of its stake in U Mobile.
“We see NFOs’ revenues recovering to pre-Covid-19 levels faster versus casinos’ due to NFOs’ closer proximity to customers, zero reliance on foreign tourism and fewer constraints from Covid-19 standard operating procedures,” it says.
Healthcare excluding gloves
CGS-CIMB Research expects the healthcare sector, particularly the pharmaceutical phase, to see an additional restoration in 2022 as sufferers return to clinics and hospitals to search remedy post-movement restrictions.
“We maintain sector “overweight”, with full restoration in affected person volumes and income depth, in addition to sturdy earnings enhance from Covid-19 vaccine fill-and-finish works, as key re-rating catalysts.
“Pharmaniaga Bhd is our top pick for the Malaysian pharma sector given near-term earnings contributions from Covid-19 vaccine supply, while IHH Healthcare Bhd is our hospital sector pick due to resilient earnings and undemanding valuations,” it says.
HLIB Research can be constructive on the sector, including that it is without doubt one of the good reopening restoration performs.
Meanwhile, RHB Research Institute says that the sector stays interesting, premised upon new development drivers and structurally increased price of care.
It believes that given the continued affected person backlogs in authorities hospitals, the outsourcing of companies to personal hospitals will proceed in 2022.
RHB Research Institute says that elevated vaccination charges and international locations accepting endemicity ought to enable the easing of worldwide border restrictions, which in flip would spur the restoration of medical tourism.
“The recovery, however, will be gradual, as cautiousness will linger – against the backdrop of tapering Covid-19-related revenue.
“That said, we believe certain elements of the latter will persist throughout 2022, notably on border testing, and hospital operators as a whole should continue to benefit from the recovery in domestic patient flows,” it says.
The brokerage’s prime decide for the sector is IHH Healthcare, though it additionally likes Duopharma Biotech Bhd.
HLIB Research is “overweight” on the sector given its steady earnings, regardless of the market or financial uncertainties.
Meanwhile, CGS-CIMB Research says the sector is poised to profit from the nation’s power transition.
It additionally sees the environmental, social and governance (ESG) dangers for the utilities trade as alternatives, given the fast development in renewable power, rising electrical energy demand and steady grid investments.
“We reiterate “overweight” on the sector given our expectations of stronger earnings per share development for the sector in 2021 to 2023 versus 2020, its undemanding 2022 sector common price-to-earnings of 13.2 instances versus 16.6 instances in 2020, respectable FY21-22 dividend yields of 5%, restricted overseas outflows as overseas shareholdings are close to historic lows at 20.2% as of October 21 and overplayed ESG considerations as we see development potential from ESG,” says CGS-CIMB Research.
Kenanga Research, on the opposite hand, factors out that the utilities sector stays a superb funding avenue for traders on the lookout for defensive earnings, thanks largely to their regulated enterprise setting.
“This also helped sustain their above average yield of 4% to 7%,” it says, including that the sector will proceed to see steady earnings by the impartial energy producers in 2022.
Areca Capital’s Wong expects the patron sector to be one of many key restoration performs in 2022, boosted by the reopening of the financial system and enhancing family and enterprise sentiment.
AmInvestment Bank Research additionally says that the nation’s financial restoration would “energise” the sector, with ultra-low fee setting and money help to help client spending.
“With economic activities picking up and Covid-19 daily cases remaining low, we noticed optimism in consumers’ future spending as reflected in the Consumer Sentiment Index.
“The sector is ripe for transformation and growth with the large number of small-to-mid cap companies with expansionary potential, coupled with pivoting opportunities underpinned by changing consumer preferences,” in accordance to the brokerage.
Meanwhile, MIDF Research expects the meals and beverage gamers to rebound strongly in 2022 and enhance their earnings, given the reopening of the resort, restaurant and cafe phase.
“In addition to the patron staples, we anticipate the patron discretionary shares to carry out higher as properly. While a rise in footfall could be attributed to this, we consider that larger on-line engagements additionally will contribute to higher efficiency of the retail phase as shoppers have tailored to on-line purchasing,’ it provides.