This article first appeared in The Edge Financial Daily on April 23, 2018

KUALA LUMPUR: The FBM KLCI index closed at a record high of 1,896.18 points last Thursday, after more than a three-year wait when it last tested this level. What is even more impressive is that during the last one year, about 22.5% or 207 of the companies listed on Bursa Malaysia have touched their all-time highs while about 50% of these companies recorded new highs this year.

A look at companies on Bursa reveals that there is another set of companies — making up 20% of listed counters — that has been overlooked after hitting record highs between 2013 and 2015. Notably, oil price collapsed in mid-2014.

Recall that the Malaysian stock market saw a sharp decline following the collapse of crude oil prices, with the FBM KLCI falling to its five-year low of 1,532.14 in August 2015. However, despite the strong recovery in the FBM KLCI, most of these companies that hit their all-time highs before the oil price collapse are still lagging far behind, by an average of 47.5%.

Some analysts believe that some of these counters could see a gradual recovery, especially the oil and gas (O&G) players, given the rally in oil prices recently.

Abel Goon, an analyst with TA Securities, told The Edge Financial Daily that a sustained level in oil price will benefit some of the O&G counters on Bursa, especially if it translates into higher capital expenditure (capex) among O&G majors.

“If you look at the Malaysian stock market, a lot of the oil and gas counters are related to services and will not benefit directly from the increase in the oil prices. If oil prices can sustain at this level and encourage capex, it will lead to more activities for players like UMW Oil and Gas Corp Bhd, Sapura Energy Bhd and others,” Goon explained.

He pointed out that counters like Hibiscus Petroleum Bhd and Dagang NeXchange Bhd could benefit directly from the rise in oil prices.

Rakuten Trade Sdn Bhd vice-president of research Vincent Lau concurred, pointing out that sentiment in the O&G industry has definitely improved as seen by the share price rally in some of the counters such as Sapura Energy.

Other laggards such as Malaysia Building Society Bhd (MBSB), which is now a full-fledged Islamic bank, could also benefit as there are not a lot of Islamic bank counters available on the exchange, he noted. MBSB closed at RM1.15, which is about 50.9% off its all-time high of RM2.34 recorded in 2013.

Other sectors such as telecommunications could also see a return of interest among investors if they can sustain earnings amid a competitive environment.

While telcos may still need time to prove themselves, Lau said recent adjustments made to their products to stay ahead of competition were not done at the expense of the players’ existing pricing, which is a positive for the sector. Maxis Bhd, Axiata Group Bhd, Telekom Malaysia Bhd and DiGi.com Bhd are on average about 18% below their all-time highs.

For other past winners, it remains uncertain if they can regain their former glory. For example, British American Tobacco (Malaysia) Bhd (BAT Malaysia) has fallen by 60.6% from its all-time high of RM63 recorded in 2014.

For its financial year ended Dec 31, 2014 (FY14), BAT Malaysia posted a revenue of RM18.6 billion and a net income of about RM902.9 million. Its latest set of financials for FY17 paled in comparison as group revenue fell by more than half to RM7.1 billion while net profit fell by 44.6% to RM500 million.

The performers

As for the 207 companies that touched their all-time highs in the last one year, most of them have benefited from the oil price collapse, a weak ringgit as well as the many mega infrastructure projects that were announced.

Infrastructure projects that were announced by Prime Minister Datuk Seri Najib Razak (now caretaker prime minister) have spurred most of the construction players that were awarded contracts related to most of the infrastructure projects. Gamuda Bhd, Lingkaran Trans Kota Holdings Bhd, George Kent (Malaysia) Bhd and Ekovest Bhd were some of the companies that saw strong growth during this time, which also coincided with the rally in their share prices.

Exporters of semiconductors, gloves, consumer products and  furniture benefited from the weak ringgit at the time. Strong demand for electrical and electronic goods has also benefited Malaysia’s semiconductor industry.

The banking sector also saw a recovery from some of the impairment losses that were recorded when oil prices collapsed and are back on investors’ radar as seen by the recent strong performance in their share prices and positive financial results.

But with such a strong uptrend seen in the last three years, questions over the sustainability of this good run begin to surface. Apple Inc’s main chip supplier Taiwan Semiconductor Manufacturing Co last week lowered its second-quarter revenue guidance on softer smartphone demand and uncertainty over the cryptocurrency mining market, leading to a decline in the share prices of semiconductor players.

It is worth noting that semiconductor-related players on Bursa were one of the main ones that hit new highs in the last one year — most of them early this year or late last year. As of last Friday, however, semiconductor players had fallen by an average 26.3% from their record highs, which is significant considering that the new highs were only achieved in the last one year.

Other than semiconductors, consumer plays such as Nestle (Malaysia) Bhd, Dutch Lady Milk Industries Bhd, Ajinomoto (Malaysia) Bhd and breweries such as Heineken Malaysia Bhd and Carlsberg Brewery Malaysia Bhd have all fallen from their record highs by about 9%-10%. It is worth noting that most of these recent highs were recorded in the first quarter this year. While most of these companies are resilient in terms of earnings, they were traded at expensive levels compared to their peers and historical valuation.

Exporters are also expected to see some pressure on their earnings with the stronger ringgit, which has strengthened by 12.8% from a year ago to 3.8977 against the US dollar.

As for the FBM KLCI component stocks, while it remains the second best performing index in Southeast Asia so far this year, valuation has become more expensive with its trailing price-earnings ratio (PER) at 17.8 times, which is slightly higher than its five-year average PER of 17.2 times.