How Low Can FBKLCI Possibly GO : A Very Personal View

This is my personal view and you shall not rely on this. 

Recently, we are hearing some positive vibes starting to emerge:

  • “Time to bottom fish”
  • “The worst is over”
  • Cases are slowing
  • Treatment is here
  • Vaccine is on the way
  • Stimulus, after stimulus, after stimulus, fiscal / monetary, etc (seriously how are we funding this? more debts?)

Let’s look at the facts. First, check the daily cases and verify whether the spread is really slowing. Look at the number of death cases everyday. This may mean solving  one key part of the equations which is the health crisis. Would we anticipate a major bull-run thereafter? Or it could be dead cat bouncing mini rallies along the way?

Going back to fundamentals. I look at the 30 constituents of FBMKLCI and I adjust the trailing earnings based on that certain industries may be negatively or positively impacted by the Covid-19.

My simple assumptions are as follows:

  1. Banks / financial institutions – 50% decrease in FY2020 earnings https://www.thestar.com.my/business/business-news/2020/03/31/up-to-49-profit-cut-seen-for-banks
  2. Tenaga / Axiata / DIGI / Maxis : 5% increase in earnings – may be more people are staying at home?
  3. Dialog : 5% increase in earnings – may be more people are storing oil at this juncture
  4. Top Glov / Harta : 25% increase in earnings – to meet the increasing demand for gloves
  5. Plantations : 20% decrease in earnings due to lower demand / plant closures , etc
  6. Airport: 50% drop in earnings (for obvious reasons)
  7. Genting / Genting Malaysia: 50% drop in earnings (for obvious reasons)
  8. IHH : 5% increase in earnings (may be more people want to see doctors because of scared, but may be less people going to hospitals to avoid covid?)
  9. Others – an overall drop in 20% in earnings

Resulting forecast is as follows:

KLCI EPS Adj

As of 31 Mar 2020, the total market cap of 30 KLCI stocks is about $860B, trading at about 15.88x PE (based on total trailing earnings of approx. $54B). If we impute the abovementioned assumptions to the trailing earnings, we would anticipate the earnings to drop from $54B to $36.7B (a drop of 32.11%).

What is my personal  end target of FBMKLCI for 2020?

Assuming that we can maintain a PE of 15.88x (Scenario 1), we are looking at KLCI trading at 903 (based on a simple mathematical extrapolation). In terms of range, I would personally anticipate the KLCI to trade as low as 796 to 1,023 (based on PE of 14-18x).

klci forecast

Anyway, these are just simple assumptions. Reality may be really different. Let’s wait for August reporting for FBMKLCI when we will see the full (?) impact of Covid on the KLCI companies.

This post is not an investment advice or endorsement. Please refer to the general disclaimer of the blog. 

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