Corporate Malaysia’s Q1 earnings disappointing

PETALING JAYA: Corporate Malaysia's first quarter results season was another disappointment despite a 21.4% jump in profits, earnings excluding exceptional gains fell below consensus.
The top 30 companies on Bursa Malaysia reported a 21.4% jump in net profit of RM16.96 billion in the three months ended March 31, 2014, boosted by large one-off gains at IOI Corporation Bhd and MISC Bhd that lifted earnings from a year ago.
However, stripping out the exceptional items, unmasked a more modest gain of 5.3% year-on-year and a 0.4% decline from the fourth quarter of 2013.
"The aggregate adjusted earnings figure came in 5.3% below our Q1'CY14 estimate of RM15.97 billion and therefore lagged our expected on-year quarterly earnings growth of 13.9%," MIDF Research's head of equity Syed Mohammed Kifni said in a report yesterday.
Among the notable FBM KLCI constituents who failed to meet earnings expectations were Sime Darby Bhd, KL Kepong Bhd, Felda Global Ventures Bhd and Telekom Malaysia Bhd.
MIDF Research has adjusted the aggregate earnings estimates of stocks under its coverage up by 0.3% to RM70.4 billion in 2014 and down 1.9% to RM76.73 billion in 2015.
"Earnings disappointment coupled with the prevailing above mean market valuation as well as 'expectation' of a hike in the OPR later this year may put a cap to the market near-term upside," Syed said.
He maintained his full-year earnings projection for the FBM KL Composite Index constituents of 1,900 points with the upper and lower bounds at 1,980 points and 1,840 points respectively.
Hong Leong Investment Bank (HLIB) also maintained its FBM KLCI year-end target of 1,910 or 16 times of 2015 earnings.
"Given the lack of fresh catalyst(s), commencement of the month-long World Cup on 12 June (whereby market traditionally drifts lower with subdued activities), heightened geopolitical risks and continued disappointing reporting season, we continue to expect the market to remain lackluster with some downside risk (albeit limited)," its analyst Low Yee Huap said.
RHB Research downgraded earnings estimates of stocks under its radar and now projects earnings growth of 3.7% and 8.7% for 2014 and 2015 respectively.
"The pedestrian earnings growth and lofty valuations will limit market upside," said its analyst Alexander Chia who maintained a target of 1,940 points for the FBM KLCI for 2014.
He said after last December's aggressive window dressing activities, it was perhaps unsurprising to find the FBM KLCI the worst-performing market in Asean.
Despite a 6.2% growth in Q1 gross domestic product (GDP), he said, corporate earnings continued to grow at a pedestrian pace given rising front-loaded costs from new investments that have squeezed margins.
"In the absence of strong earnings growth, market valuations remain at elevated levels that we expected will cap upside," he said.
Concurrently, Chia expects the downside to the market will be limited, given the high level of liquidity in the market and corrections will likely be shallow.
RHB Research continues to like plantations, banks, construction, property and Sarawak Corridor of Renewable Energy (SCORE) plays with Malayan Banking Bhd (Maybank), Genting Plantations Bhd, Cahya Mata Sarawak Bhd and Press Metal Bhd as its top picks.