High valuations, earnings to hit Malaysia stocks-Citi

KUALA LUMPUR, Dec 15 (Reuters) - Malaysian equities, one of Asia's top performers, could fall a further 17 percent in 2009 due to sliding economic growth, and earnings of plantations and banks are at high risk, Citigroup said in a note.

Malaysia's benchmark share index .KLSE has lost 41 percent so far this year but fared better than Southeast Asian peers such as Singapore .FTSTI and Thailand .SETI where prices have lost nearly 50 percent.

"The market has yet to fully discount a potential disappointment in gross domestic product numbers," analyst Wai Kee Choong said in a strategy note dated Dec 12 and issued on Monday.

"At risk is the first quarter GDP, which could fall sharply before staging a mild rebound in the second half," he said.

Malaysia's GDP is expected to grow by 3.0 percent in 2009, down from a September forecast of 5.0 percent, according to a recent Reuters poll, reflecting weaker demand at home and from overseas. [ID:nSP419643]

Choong set a new benchmark price-to-book value of 1.2 times, the average for Asia, for Malaysian markets, down from Malaysia's current benchmark of 1.45. This implied a 17 percent decline in the index to 691 points, he said.

By 0400 GMT, the index was flat at 853.2 points.

Malaysia's market valuations could easily drop below the low of 1.4 times price-to-book hit during the recession in 2000-2001 recession and corporate earnings growth were set to fall further, Choong said.

"Among the bigger sectors, we see further EPS downside risks for the plantation and banking sectors if the macro environment worsens," he said.

Choong advised investors to stick to stocks with high earnings visibility and low price-to-book valuation, such as No.2 lender Bumiputra-Commerce BUCM.KL, gaming-to-power Tanjong (TJPL.KL), property firms IGB (IGBS.KL) and KLCC Property (KCCP.KL). (Reporting by Soo Ai Peng; Editing by Anshuman Daga)