In January, KLCI finished the month with a negative 0.4 percent month-on-month return, which was a weaker than usual performance. While KLCI did not manage to put in a decent performance in January, the market should expect to see a better performance going forward. Based on historical data, KLCI tends to make a positive return with an average of 0.7 percent gain in February over the last ten years.
Moving forward, UOBKH expects the regional investment climate to turn more defensive following a strong start year-to-date. Thus, UOBKH recommends investors to focus more on mid-caps to capitalise on potential catalyst events that are expected to emerge by end 1Q19. Here are three mid-cap stocks that UOBKH recommends turning to as the market turns cautious.
Investors Takeaway: 3 MY Stocks To Invest In As Market Turns Cautious By UOBKH
- Heineken Malaysia
While Heineken Malaysia ended 9M18 earnings only making up 65 percent of consensus full year estimates, the recent 4Q18 results dispelled concerns of an earnings shortfall and cap off the year with healthy volume growth. Because of concerns on its earnings, the stock traded down below -2SD from its mean price-to-earnings multiple. With visible organic growth and low regulatory and policy risks, UOBKH believes that Heineken Malaysia should re-rate after releasing its quarterly results. As it turned out, the stock began recovery post-FY18 earnings release.
BUY, TP RM24.50; Current share price RM23.12
- Syarikat Takaful Malaysia Keluarga
According to UOBKH, Syarikat Takaful Malaysia Keluarga (Syarikat Takaful) is currently trading at an attractive valuation. The stock is trading at around 9.8 times forward-FY19 price-to-earnings (P/E), which is -1SD below its mean. Coupled with over 5 percent dividend yield, Syarikat Takaful is one of the more prominent stock picks in UOBKH’s watchlist.
Among insurance peers, UOBKH expects Syarikat Takaful is expected to deliver the strong earnings growth of 23 percent in FY19, aided by a relatively strong premium growth of 19.1 percent as it marks full-year contribution of its recent bancassurance tie-up with Bank Rakyat as a preferred bancassurance partner. UOBKH also highlights that Syarikat Takaful has the headroom to raise dividend payout ratio from the current 50 percent level, lifting dividend yield above the current 5.2 percent.
BUY, TP RM5.82; Current share price RM4.45
- CIMB Bank
Another stock that UOBKH recommends is CIMB Bank (CIMB). Similar to Syarikat Takaful, CIMB is also trading at attractive valuation. Its forward-FY19 P/E of 10.7 times (vs 5-year historical mean of 13.3 times) and one time forward-FY19 P/B (vs historical mean of 1.2 times) make it attractive especially with improving sentiment in its Indonesian business. UOBKH notes that potential increase in net interest margin and growth recovery in CIMB Niaga will help to catalyse CIMB’s share price.
One of the biggest tailwinds for CIMB Bank is the dovish stance on interest rate hike outlook in the US. This would lend support as it translates to a more stable rupiah and net interest margin outlook for CIMB.
BUY, TP RM7.00; Current share price RM5.83
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