Brokers' take: UOBKH positive on economic reopening with 12th Malaysia Plan

UOB Kay Hian (UOBKH) remains positive on Malaysia's economic reopening following Monday's announcement by its prime minister regarding the country's 12th Malaysia Plan (12MP).

In a report on Tuesday, the brokerage reiterated its target price of RM1,635 (S$527.87) for the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI) this year.

Analyst Vincent Khoo noted that this figure was conservatively well below the bottom-up target of RM1,732. He believes the index could hypothetically reach RM1,775 in end-2022 should historical year-end price-to-equity valuations remain half a standard deviation point above the mean.

UOBKH's top stock picks comprise CIMB, Genting Malaysia, Inari Amertron, MYEG, Press Metal, Sunway Berhad, Telekom Malaysia and Pentamaster.

The brokerage believes the aviation and gaming sectors, due to their dependence on tourism, as well as banks are set to benefit from the reopening of Malaysia's economy. It has also highlighted "buy" rated stocks Press Metal, OM Holdings and Malaysia Smelting Corp as potential major beneficiaries of a commodity super-cycle.

The new plan worth S$129 billion is the first major policy introduced by Prime Minister Ismail Sabri Yaakob's administration, and is the biggest five-year development plan in Malaysia to date.

The move comes on the back of the failure to meet several key goals of the 11th Malaysia Plan which ended last year, and aims to turn Malaysia into a high-income economy by 2025, eradicate abject poverty, and increase the contribution of small businesses to the total economic output.

Commenting on this strategy, Mr Khoo said that while 12MP incorporates "pragmatic aspirations", he is expecting a neutral reaction from the equity market considering how it is short-term oriented, in his view.

"Nevertheless, we continue to expect Malaysian equities to stage a meaningful uptrend through Q4 2021, in tandem with the nation achieving its Covid-19 vaccination threshold which would allow a fuller reopening of the economy," said the analyst.