AmResearch Sdn Bhd expects the earnings per share (EPS) of the KL Composite Index (KLCI) to grow 14.7% next year, mainly driven by the banking, power and gaming sectors. For 2005, it has forecast EPS growth rate of 12%.
“We offer a number of reasons for our seemingly bullish 2006 EPS growth rate forecast.
“Apparently, our forecasts have raised some eyebrows, with the main issue being our apparently more aggressive-than-consensus estimate,” it said in a research note issued yesterday.
The forecast was based on 48 companies of the 100 CI stocks, representing 82% of the total market capitalisation of the index as at end-Aug.
The earnings estimates were “calendarised” (i.e. adjusted to Dec 30 as the year-end) before calculating year-on-year growth, and excluded one-off items from the actual reported earnings.
The brokerage said in arriving at its growth numbers, it had included companies with years ended June which had reported results that came in below expectation, affecting the actual earnings in base year 2004.
It said the sectors that would be driving the market’s earnings growth next year were banking, power, gaming and telecommunications, which made up 53% of the total market capitalisation of the KLCI.
Banking stocks in the benchmark index carry 23% weightage in the KLCI, telecommunications 13%, power 11% and gaming 6%.
The banking sector, having the most weightage, is likely to post EPS growth of 12.4% next year, led mainly by Public Bank Bhd and Commerce-Asset Holding Bhd (CAHB).
Public Bank was expected to record EPS growth of 15.3% this year on strong loan growth of 20% year-on-year. AmResearch has not factored in any potential boost to the bank’s earnings, such as acquisitions, in the next 12 months.
As for CAHB, 2006 EPS is likely to grow 14.8%, following the completion of the privatisation of CIMB Bhd, expected by end-2005, and an internal restructuring involving the commercial bank and merchant bank, that will result in a more cohesive and profitable unit.
Meanwhile earnings growth of 26.2% for the power sector would come largely from Tenaga Nasional Bhd (TNB), which would benefit from cost-savings measures, including bad debt recoveries, costs cutting and reduction in power theft, the research house said.
Furthermore, the Government had granted diesel subsidies and waiver of debt to the tune of over RM700mil, it noted. TNB’s earnings will also see a boost in the event that the Government approves its tariff hike proposal next year. Elsewhere, Malakoff Bhd was expected to record near double-digit EPS growth rate of 19% from new acquisitions, it added.
For the gaming sector, the double-digit growth rate of 23.6% is assumed to come from the casino companies and Tanjong plc.
Genting Bhd and leisure unit, Resorts World Bhd, are likely to record net profit growth of 16% and 25% respectively for the year ending Dec 30, 2006, on stronger earnings contribution from Star Cruises and the full-year impact from new rooms coming onstream this year. Resorts’ share of Star Cruises’ pre-tax profit is envisaged to expand 77% to RM135.5mil for FY2006, due to full-year contribution from two vessels delivered this year.
Tanjong is anticipated to post higher earnings growth of 22% in 2006 amid improved earnings from its Tropical Island Resorts in Germany and power division.
The research house said the resort's losses were likely to narrow, underpinned by improvement in visitor arrivals, while the power division’s earnings were expected to rebound after being affected by higher maintenance costs this year.
The second largest sector, telecommunications, is likely to slow down, thus negating the KLCI's overall growth rate. This sector is estimated to grow only 11.5%, mainly driven by growth from Telekom Malaysia Bhd (TM) and Digi.com Bhd.
“We expect TM to achieve an EPS growth rate of 20.8% in 2006 on improved margins, with benefits from cost-control measures filtering through, a slower increase in depreciation charges and the full 12-month contribution from PT Excelcomindo of Indonesia,” AmResearch said.
DiGi's EPS, on the other hand, was projected to grow 17.9% in 2006, supported by a bigger base of mobile subscribers, a moderation in depreciation charges and lower interest expense as borrowings were pared, and improved cashflows, it added.
COMMERZ : [Stock Watch] [News] DIGI : [Stock Watch] [News] GENTING : [Stock Watch] [News] RESORTS : [Stock Watch] [News] MALAKOF : [Stock Watch] [News] PBBANK : [Stock Watch] [News] TANJONG : [Stock Watch] [News] TELEKOM : [Stock Watch] [News] TENAGA : [Stock Watch] [News]