Oil price rebound set to spur ringgit, O&G stocks

KUALA LUMPUR: As Malaysia’s economy and equity market continue to soar, investors anticipate that the rebound in crude oil prices will be a major boost and re-rating catalyst for the ringgit and oil and gas (O&G) stocks.

AllianceDBS Research said in a note that on the external front, the November trade data showed sustained growth momentum in gross exports, which grew 14.4 per cent year-on-year.

Electronics and electrical (E&E) goods, which made up 38 per cent of exports, were the key driver for the strong exports and the trend is expected to sustain this year.

Private consumption had shown a steady improvement since 2015 as the drag from the Good and Services Tax implementation eased, with the sustained economic growth spilling over to the broader economy, said the research firm.

It also noted that with the general election due this year, the government would likely keep a lid on the rising of cost of living.

“Besides measures already announced in the 2018 Budget to boost domestic consumption, the government’s recent decision to maintain the electricity tariff for the first half of this year is also positive for consumers.”

On key themes this year, AllianceDBS said bank loan growth post-general election would see an uptick, and an interest rate hike would anchor a 10.1 per cent earnings growth for the banking sector.

While noting that Bank Negara would probably hike its policy rate after the general election, AllianceDBS has maintained Malayan Banking Bhd and CIMB Group Bhd as top bank stocks as both banks remained as proxies to the cyclical earnings recovery of the banking sector.

Another supporting factor would be oil and gas stocks, as global O&G capital expenditure recovery will benefit players with global or regional presence, amid an ongoing cautious stance by Petronas Nasional Bhd.

Key benefactors for the O&G sector would be Hibiscus Petroleum Bhd, which stands as the best proxy for rising crude oil prices, and Bumi Armada that has been a laggard.

Wah Seong Corp Bhd remains AllianceDBS’ other pick.

Meanwhile, SKP Resources Bhd is its top pick for the E&E exports theme.

The strengthening ringgit is not a major concern for the company as its revenue is denominated in ringgit and it enjoys a full cost pass-through arrangement with its key customer.

The tourism sector would also benefit from the recovery in domestic spending and influx of Chinese tourists, added AllianceDBS.

Besides measures already announced in the 2018 Budget to boost domestic consumption and sentiment, the government’s recent decision to maintain the electricity tariff for the first half of this year is also positive for consumers. ALLIANCEDBS RESEARCH