CGSI Research said 85% of the earnings from companies under its coverage are domestically driven.
PETALING JAYA: CGS International (CGSI) Research sees several “compelling” reasons for a meaningful expansion in forward earnings multiples for corporate Malaysia in 2025, as the country enters the second full year of the Madani Economic framework and fiscal reforms.
In a note yesterday, the research house highlighted key tailwinds for the local market, including a progressive policy backdrop, robust domestic demand, a reversal in currency trends and double-digit earnings growth for the second consecutive year for most companies under its coverage.
However, the optimistic view comes on the back of a lacklustre third quarter for corporate Malaysia.
CGSI Research said this had affected the strong growth rates seen in the first eight months of the year for the FBM KLCI and FBM100 of 15% and 16%, respectively, to just 10% and 13% by the end of November.
“This is despite Budget 2025 highlighting continuity in the Madani reform and growth agenda, good earnings growth over the first nine months of 2024 (9M24), prospects for further ringgit appreciation and acceleration in domestic demand.
“Hence, valuations continue to track at the lower end of historical ranges with the expansion in share prices since end-2023 not even keeping up with an improved earnings trajectory,” it said yesterday.
CGSI Research said 85% of the earnings from companies under its coverage are domestically driven.
As such, the strong growth in private consumption and gross fixed capital formation is expected to positively impact these firms from a top-down perspective.
“In addition, this same domestic driven grouping should benefit from local currency appreciation as revenues are mainly ringgit-based while several cost items are imported,” it said.
After slight declines in 2022 and 2023, CGSI Research forecasted a sustained double-digit earnings growth in 2025, with an estimated 14% growth in 2024 and 11% next year.
“Results up to 9M24 support this view with net profit up 13% year-on-year and making up 75% of our earlier target.
“Over the past 11 months, Bloomberg consensus estimates for 2025 for 10 out of 17 sectors have been raised, while five were reduced by more than 3%,” it said.
The research outfit said it remained cautiously optimistic in its 2025 projections.
While staying bullish on domestic-driven sectors such as construction, utilities, telecommunications, automotive, banks, consumer discretionary and upstream plantations, CGSI Research downgraded healthcare to “neutral” due to strong share price performance in the sector and estimates indicating a slowdown in 2025.
It also demoted the technology sector from “neutral” to “underweight”, equivalent to a “sell” call, citing the industry’s year-to-date underperformance and the failure to meet high analyst estimates.
Concurrently, the research unit is bullish on the oil and gas services sector, noting that share prices have unjustly corrected despite strong earnings performance.
While there is potential upside from US tariff changes on Chinese imports, it remains “underweight” on the gloves industry, as it finds it difficult to justify forward multiples even in a bullish recovery scenario.
Among its top stock picks are Hong Leong Bank Bhd
, Gamuda, Sime Darby Bhd and Telekom Malaysia Bhd.
