Oil & gas sector’s Q4 earnings – widespread earnings misses, says PublicInvest

PETALING JAYA: PublicInvest Research said the oil and gas sector took the limelight again in the results round-up for the fourth quarter (Q4) of 2016, with widespread earnings misses owing to unprecedented impairments as well as the slowdown in job flows.
The research house noted that the plantation and construction sectors also recorded disappointing results, though largely down to specific developments such as delayed billings, and not symptomatic of operational difficulties.
“Consensus expectations were fairly similar this time round, with the oil and gas, plantation and construction sectors also proving to be a bane,” it noted.
The Q4’s earnings hits (above and/or in-line) are at a convincing 60%:40% against the 52%:48% in the previous quarter, it added.
Meanwhile, it said the property and telco sectors saw the most number of downward earnings revisions, to account for changes in billing assumptions for the former and imputation of higher costs for the latter.
Nonetheless, PublicInvest Research said the earnings picture is better now with an expectation of more substantive earnings recovery in 2017 and 2018, with the FBM KLCI expected to achieve 1,750 points at the end of the year.
It noted that the target may possibly be overshot based on expectations and timing of the forthcoming general elections, adding it sees gradual recoveries in global economic conditions this year, more pertinently in China.
PublicInvest maintained its “overweight” stance on the plantation, power, oil and gas, as well as the construction sectors.
Its suggested picks for 2017 are Sime Darby, Genting Plantations, Ta Ann Holdings, LBS Bina, Chin Hin Group, Wah Seong Corp, SapuraKencana Petroleum, VS Industry, JAKS Resources and SCGM.
“We suggest selective exposure into the banking sector, as we see valuations of some increasingly attractive at current. We see no major reason to remain under-invested in the market,” it said.
Commenting on the currency, PublicInvest believes that the ringgit has been oversold by about 10%, which may suggest a potential reversal of foreign flows when the dust (capital outflow from US Fed-related actions) eventually settles.
“Domestic investors flush with cash should be primed for re-entry. While the market has popped up a little since the end of last year when we kept harping on this, we still see room for further upside,” it added.