FBM KLCI constituents’ earnings cut 2.3%

03 Dec 2019 / 20:48 H.

PETALING JAYA: The aggregate earnings for the FBM KLCI constituents have been revised down by 2.3% to RM51.4 billion for 2019 following the third-quarter results season, according to a note by MIDF Research.

Likewise, the research house is trimming its FY2020 estimates by 1.4% to RM55 billion.

“Moreover, the aggregate FY2019 earnings estimate and FY2020 earnings forecast of the stocks under the MIDF coverage universe was slashed by 7.1% to RM68.9 billion and by 3.7% to RM75.3 billion, respectively, vis-à-vis our earlier projections prior to the latest reporting season,” it said, noting that the most sizeable cuts in the forward estimates involved lumpy downward earnings adjustments for companies such as Sapura Energy Bhd, AirAsia Group Bhd, Petronas Chemicals Group Bhd, Sime Darby Plantation Bhd, YTL Corp Bhd and YTL Power International Bhd.

MIDF Research said it is maintaining its KLCI year-end target at 1,630 points.

“In gist, the latest quarterly corporate earnings performance was rather listless and failed to excite which was reflected in the diminution of our aggregate forward earnings estimates for both FY2019 and FY2020.

“Moreover, it is notable that the ratio of outperformers against underperformers among the FBM KLCI constituents under our coverage improved in Q3 19, vis-à-vis the preceding quarter, and the percentage of underperformers among the stocks under our coverage universe showed a sequential decline during the review quarter,” it said.

Likewise, PublicInvest Research said it was lowering its assumptions for KLCI earnings growth by 1.9%, and expects the benchmark index to close around 1,620 points given the earnings cuts.

“Importantly however, growth trajectory is expected to resume next year, which suggests the FBM KLCI target likely ending closer to 1,700 points end-2020.

“Malaysia’s investment proposition for 2020 appears to be better than what it is in 2019. We now have some semblance of growth direction/initiative, as unveiled in Budget 2020 with its positive undertones. The government has stepped up (albeit in targeted manner), with consumers seemingly lacking confidence to spend and businesses appearing reluctant to invest,” it said.

Its stock picks are: EA Technique (M) Bhd, Mega First Corp Bhd, Ta Ann Holdings Bhd, Serba Dinamik Holdings Bhd, Sapura Energy Bhd, Genting Bhd, IJM Corporation Bhd and CIMB Group Holdings Bhd.

Meanwhile, CIMB Research said it is now projecting KLCI earnings to fall 7% for 2019 from 5%, and grow at a slower rate of 7% for 2020.

“We maintain our end-2019 KLCI target of 1,583 pts and introduce an end-2020 KLCI target of 1,636 to reflect potential earnings risk,” it said.

For stocks under its coverage, CIMB said it would be cutting earnings projections for corporates by 1.7% to 2% for FY19-FY20.

“We project corporate earnings for stocks under our coverage to fall 2.1% in 2019F, before growing at 9.9% in 2020,” it said.

The research house’s top three picks are Yinson Holdings Bhd, Pentamaster Corp Bhd and Tenaga Nasional Bhd.

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