Malaysian Stocks Valuation Has Moved 'Too Fast'

By Chan Tien Hin
June 22 (Bloomberg) -- Malaysia's stocks have risen "too
far, too fast" given that corporate earnings will shrink this
year, Maybank Investment Bank Bhd. said in a strategy report.
"The market rally has stretched valuations to levels
unjustified by earnings growth," Andrew Lee, an analyst at
Maybank Investment, wrote in the report. "An economic and
corporate earnings recovery is likely to be anemic."
A "fair valuation" for the market by the end of 2009
would be at a price-to-earnings multiple of 13 to 14 times,
representing an index level of 970 to 1,040, the report said.
The benchmark Kuala Lumpur Composite Index dropped as much as
1.8 percent to 1,040.40 and traded at 1,051.82 as of 12:12 p.m.
local time, set for the lowest close since May 29.
The Malaysian index has risen 23 percent in the past three
months, after Prime Minister Najib Razak, who took office on
April 3, announced stimulus plans valued at 67 billion ringgit
($19 billion) to help resuscitate economic growth.
Malaysia's economy shrank 6.2 percent last quarter and will
probably post a "similar" contraction in the three months
ending June as exports slump amid the global recession, the
central bank said last month.
Corporate profits in the Southeast Asian country will
shrink 8.4 percent this year, pricing the market at 15.6 times
earnings, Lee said in the report. Earnings will grow 9.8 percent
in 2010, he said.
"It is difficult to justify equities trading" at a 15.6
times price-to-earnings multiple "if the prospective growth is
on average less than 1 percent for each of the next two years,"
Lee said. Malaysia is the second-most expensive market in the
region based on both 2009 and 2010 earnings, yet has the second-
lowest prospective growth in 2010, he said.
To be sure, "there is money to be made yet in equities"
as Najib's "new initiatives may inject positive sentiment,"
Lee said. Najib will make "significant announcements" related
to his plans to ease restrictions on foreign investment, the
nation's stock exchange said on June 16.