Broker Name: UOB Kay Hian
Date of Report: 4 July 2025

Malaysia Market Outlook 2H25: Recharging for Outperformance and Positioning for the Next Leg Up

Strategic Overview: Malaysian Equities Set to Outperform in 2H25

Malaysian equities are poised for a strong finish in 2025, driven by easing global risk aversion, robust domestic liquidity, and a series of pragmatic US trade accords. While the FBMKLCI experienced a pullback in the first half of the year, falling 8.3% in local currency and 2.8% in US dollar terms, market sentiment is turning positive. The market is expected to progressively adopt a risk-on mode as business capex cycles and spending are re-ignited. Investors are encouraged to capitalize on the anticipated “summer lull” in Western equities and a softer 2Q25 reporting season to position for a potential year-end rally.

Key Catalysts for Malaysian Equities

• Easing Global Risk Aversion: Calmer global investment sentiments are expected to prevail, barring any major escalation in Middle East conflicts.
• Trade Diversion and Onshoring: Malaysia’s appeal as a trade diversion and onshoring destination continues to strengthen, especially after the US “Liberation Day” tariff announcements had minimal impact on its manufacturing sector.
• Strong Domestic Trading Liquidity: Local liquidity remains robust, underpinning the resilience of the equity market and supporting the ringgit’s rebound since April 2025.

FBMKLCI Valuation and Target

End-2025 FBMKLCI Target: 1,620 (implies -1.0SD PE at 14.9x 2025F vs 10-year mean of 16.2x)
Bottom-Up FBMKLCI Target: 1,666
Current FBMKLCI: 1,549
Valuation: The index is trading at an undemanding 14.0x 2025F PE (-2.25SD), offering a widened earnings yield gap of 3.6% (five-year mean: 2.7%). This reflects high risk aversion, further evidenced by the collapse of the 10-year Malaysian Government Securities (MGS10) yield to 3.49% from 3.81% at the start of the year.
Market Position: The index is already close to the assessed bottom, with the worst of US policy threats likely behind us.

Sector Ratings and Positioning

Overweight: Building Materials, Construction, Healthcare, Utilities, Technology (selective), Property, Glove Manufacturing
Market Weight: Banking, Consumer, Gaming, Oil & Gas, Plantation, REITs, Telecommunications
Underweight: Automobile (due to persistent challenges from Chinese imports)

Top Stock Picks for 2H25: In-Depth Analysis

Investment Essentials: Themes and Sectoral Opportunities

Key Investment Themes for 2H25:

• Iskandar 2.0 & Mega Projects: Property developers along RTS alignment and landowners benefiting from rising demand for data centers, industrial land, and renewable energy. Key stocks: Eco World Development, Sunway.
• Data Centers: Increased data center-related land sales and project rollouts. Beneficiaries: Eco World Development, Gamuda, Sunway Construction, VSTECS.
• Green Agenda (NETR): Solar, RE export potential, and sustainable energy. Key stocks: Solarvest Holdings, Pekat Group, Tenaga Nasional.
• Ringgit Strength: Import savings provide margin expansion for value retailers. Key stocks: Eco-Shop Marketing, Mr DIY Group.
• Blockchain & AI: Rollout of ZTrade, NationalID, WorldID. Notable stocks: My EG Services, Agmo Holdings, Cuscapi (crypto).
• Trade Diversion & Semiconductor Cycle Recovery: EMS and semiconductor sectors benefiting from MNC capacity expansion. Key names: NationGate, VS Industry, Inari Amertron, Greatech Technology.
• China Economic Recovery: Demand boost for industrial metals, oil, and tourism. Key stocks: Press Metal, Malaysia Smelting Corp, Pavilion REIT, Carlsberg, Heineken, Alpha IVF.

Key Sector Earnings Growth Forecasts (2024-2026)

Key Events and Tactical Opportunities in 2H25

• New milestones in the Iskandar region
• Additional data center construction contract awards
• Rollout of solar projects under the National Energy Transition Roadmap (NETR)
• Monthly electricity tariff adjustments
• Commencement of major infrastructure projects (e.g., Penang LRT)
• Ringgit strength beneficiaries and progress in trade diversion/onshoring

Other notable BUYs with imminent catalysts include Eco World Development Group (Iskandar 2.0, DC, mega infrastructure), Hume Cement Industries (infrastructure), Dialog Group (oil & gas), and Lagenda Properties (deep value).

FBMKLCI Valuation Metrics

Ringgit Sensitivity: Winners and Losers

Profit Impact of 1% Strengthening of RM/US\$ (2025F):

• Winners:
  • Axiata Group: +3.8%
  • Duopharma Biotech: +3.0%
  • Genting Malaysia: +2.7%
  • Tenaga Nasional: +2.0%
  • Fraser & Neave Holdings: +1.4%
  • Kuala Lumpur Kepong: +0.9%
  • SD Guthrie: +0.9%
  • Genting: +0.9%
• Losers:
  • OM Holdings: -6.5%
  • Top Glove Corporation: -1.3%
  • Hartalega Holdings: -1.2%
  • Yinson Holdings: -1.1%
  • Inari Amertron: -1.0%
  • Kossan Rubber: -0.8%
  • Press Metal Aluminium: -0.4%
  • VS Industry: -0.7%

Conclusion: Positioning for Uptrend and Key Takeaways

Malaysian equities are primed for outperformance in the second half of 2025, underpinned by falling global risk aversion, strong onshoring flows, and an undemanding valuation. Investors are advised to turn increasingly risk-on, focusing on domestic investment themes such as mega infrastructure, data centers, green energy, and technology. Selective stock picking in building materials, construction, healthcare, utilities, and technology will be key to capturing upside, while defensive sectors and value retailers provide tactical opportunities amidst currency appreciation.
With the FBMKLCI trading at attractive valuations and major policy risks receding, the groundwork is laid for an uptrend into 2026. Sector rotation, a focus on resilient beneficiaries of trade diversion, and an eye on key project milestones will be essential for outperformance.