KUALA LUMPUR: The oil and gas sector was disappointing in the second quarter reporting season while the consumer and media sectors continued to underperform, says PublicInvest Research in its market strategy report on Wednesday.
The research house attributes the weak performance in the consumer and media companies to higher operating costs and lower business volumes.
The current quarter’s earnings hits (above and/or in-line) weakened to 62%:38% vs 71%:29% as at 1QCY17, though still with a positive bias.
"Headline numbers may appear worrying as a greater number of companies are seeing weaker-than-expected numbers, contrary to the gradual improvements seen in recent quarters.
"While that may be so, a number of the disappointments are coming about as a result of delayed (but now on-track) work schedules and/or higher capacity utilizations expected in the second half of the year, hence the headline numbers looking worse than it actually is," it said.
PublicInvest Research adds that the bulk of earnings adjustments this current quarter have no significant impact on the KLCI basket of stocks with its earnings growth assumptions for 2017 and 2018 being 3.8% (@ 1QCY17: 4.1%) and 5.6% (@ 1QCY17: 5.4%) respectively.
It has maintained its year-end 2017 index taget to 1,820 points.
Consensus is that the USD/MYR exchange rate should trade close to RM4.10/RM4.20 by year-end, which could suggest a further inflow of foreign portfolio of funds into the domestic market, says PublicInvest Research.
"This will also now be underpinned by consensus 2017 GDP growth forecasts being revised upward to an average of c.5.2% from the 4.6% previously anticipated. The upcoming 2018 Budget announcement, one which is expected to be “goodie-filled” in conjunction with the upcoming 14th General Elections should lift market sentiment and continue to keep near-term interest in the market fairly active," it says.
On the North Korean missile threats to world nations, the research house says while "unsettling", it does not believe they will be carried out.
"Market volatilities will spike nonetheless, but we do not see it derailing medium-term market positives, not enough to leave one being under-invested in the market," it says.
PublicInvest Research's suggested picks for the remainder of 2017 into 2018 are Century Logistics, Serba Dinamik
, LBS Bina, Chin Hin Group, Sapura Energy, VS Industry, Mega
First Corporation, SCGM, Yong Tai (new) and Hock Seng Lee (new).
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