Comprehensive Analysis of Malaysian Stocks: February 2025 Strategy Note by CGS International
Overview of the January 2025 Market Performance
January 2025 marked a turbulent start for the Malaysian stock market, with the FTSE Bursa Malaysia KLCI (KLCI) declining by 5.2% month-on-month (mom), its worst start since 1995. This underperformance occurred amidst new US export controls on advanced chips, leading to sell-offs in the Technology, Construction, Utilities, and Property sectors. Foreign investors recorded their fourth consecutive month as net sellers, with cumulative foreign outflows since 2010 breaching RM40 billion. Despite the challenges, some sectors and stocks showed resilience, offering opportunities for discerning investors.
Sector Performance Highlights
Out of Bursa Malaysia’s 13 sectorial indices, only the REIT sector posted gains in January 2025. The Construction (-13.5%), Technology (-10.5%), and Utilities (-9.9%) sectors were the worst performers, while the REIT sector eked out a modest 0.4% gain.
Deep Dive Analysis: Highlighted Companies
Gamuda
Gamuda faced a challenging month, with its share price declining by 14.8% mom. Despite only 7% of its RM37 billion order book being attributed to data center (DC) projects, the company was affected by investor concerns over the AI Diffusion Framework. However, Gamuda’s primary end client has proprietary chips, making it less dependent on Nvidia’s AI chips and less vulnerable to export restrictions. Key catalysts for Gamuda include new construction wins and stronger property sales. The stock is rated ADD with a target price of RM6.45, supported by a projected EPS CAGR of 23% from FY2023 to FY2025.
Hong Leong Bank
Hong Leong Bank is recognized for its strong asset quality and promising loan growth projections. The bank aims to increase its return on equity (ROE) from 11.8% in FY2023 to above 12.5% in FY2026. With better net interest margin (NIM) expectations, the stock is rated ADD with a target price of RM31.40.
Sime Darby Berhad
Sime Darby is positioned as a laggard play on private consumption and a beneficiary of the appreciating ringgit. Trading at an attractive 2025F price-to-earnings ratio (P/E) of 8.3x with a 6.0% yield, the company is rated ADD with a target price of RM3.60.
Telekom Malaysia (TM)
With its extensive fiber network, Telekom Malaysia is set to benefit from rising data consumption across retail, enterprise, and wholesale markets. The company boasts a healthy cash flow and a projected 4% dividend yield for FY2025F. With a 17% ROE and a 13.3x FY2025F P/E, Telekom Malaysia is rated ADD with a target price of RM8.60.
Tenaga Nasional (TNB)
Tenaga Nasional is central to Malaysia’s Net Energy Transition Roadmap (NETR). The company is well-poised to capitalize on recurring regulated returns from energy transition-related grid upgrades. TNB is rated ADD with a target price of RM19.10.
YTL Corporation and YTL Power International
YTL Corporation and YTL Power International were among the worst performers in January 2025, with their share prices declining by 28.5% and 29.2% mom, respectively. Concerns over their proposed bonus issue of unlisted free warrants exacerbated the declines. Future catalysts include updates on the KL-SG High-Speed Rail (HSR) project and higher DC capacity take-ups. Both companies face investor scrutiny, but positive developments could drive share price recovery.
Pentamaster and Malaysian Pacific Industries
Pentamaster (-17.1% mom) and Malaysian Pacific Industries (-14.2% mom) were hit by concerns over the potential negative impact of US automotive import tariffs. Recovery in the global automotive industry and clearer trade policies are critical for these companies’ future performance.
KPJ Healthcare
KPJ Healthcare saw a 7% decline in January 2025 due to potential implementation of the Diagnostics-Related Group (DRG) practice, which could impose a price ceiling on hospital fees. KPJ is particularly vulnerable due to its concentration in Malaysia. Dialogue with stakeholders and justified price adjustments are needed to address these concerns.
Petronas Chemicals and Lotte Chemical Titan
The petrochemical sector continues to face challenges, with Petronas Chemicals (-10.1% mom) and Lotte Chemical Titan (-10.2% mom) struggling amidst global downturns and uncertainties. Sustained cash losses remain a concern for Lotte Chemical Titan.
Berjaya Food
Berjaya Food’s share price rose by 13% mom following the Hamas-Israel ceasefire, which alleviated ongoing boycotts of Starbucks Malaysia. Further recovery in consumer spending could drive the company’s return to profitability.
Velesto Energy
Velesto Energy recorded a 22.6% mom increase in share price as investors anticipated a potential special dividend from a rig sale. The company remains a bright spot amidst broader market challenges.
Alliance Bank
Alliance Bank’s share price rose by 7.4% mom on expectations that DBS could enter as a major shareholder. This development has increased investor confidence in the bank’s future prospects.
Conclusion
January 2025 posed significant challenges for Malaysia’s equity market, but opportunities remain for strategic investors. While sectors like Technology and Construction saw steep declines, specific companies demonstrated resilience or potential catalysts for recovery. Investors are advised to watch for developments in key projects, regulatory changes, and global macroeconomic trends that could impact the Malaysian market in 2025.
