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PETALING JAYA: The recently concluded corporate earnings season offered investors little to cheer about.
Beyond the record profits by big banks, there were few upside surprises to inspire the market, according to research houses.
According to CIMB Research, less than a quarter of the 128 companies under its universe beat expectation, while more than a third came out with disappointing results.
The firm is keeping its end 2018 target for the FTSE Bursa Malaysia KL Composite Index (FBM KLCI) at 1,880 points, reflecting a three-year average value of 16 times earnings in 2019.
CIMB Research continued to favour construction stocks for newsflow and new order book from major infrastructure jobs like the RM28bil MRT2 project, utilities for their defensive earnings and laggard plays and selected smaller cap stocks for their superior earnings growth.
“We also like the rubber gloves and oil and gas sectors,” it said in a strategy report released on Friday.
The aggregate reported earnings of FBM KLCI 30 constituents in the fourth quarter of 2017 totalled RM15.48bil, MIDF Research said in a report today.
This is a 1.3% decline compared with RM15.68bil reported in the third quarter.
However, the aggregate reported earnings figure required some adjustments in order for the sequential and on-year growth numbers to reflect a fairer picture of the benchmark’s earnings performance.
“On this score, the aggregate normalised fourth quarter earnings of FBM KLCI 30 constituents were slightly lower at RM15.16bil,” it said. The firm reiterated its year-end 2018 FBM KLCI target at 1,900 points.
Public Investment Bank, meanwhile, was blunt in its assessment of the earnings season. “Disappointing, but not systemic,” it said.
The biggest letdown, the firm said, was the oil and gas sector.
“There were also pockets of weaknesses in other sectors, with companies mostly affected by higher operating costs, though not sufficiently conclusive to see it as systemic or call for a reversal in fortunes as yet,” it said.
“In short however, this session is a disappointing one with a greater number of companies missing estimates,” the firm added.
Public Invetsment Bank year-end index target was kept unchanged at 1,860 points.
It tells its clients to adopt a “trading-oriented stance” to outperform the market this year.
Corporate earnings outlook in 2018 had deteriorated somewhat, according to Kenanga Investment Bank, although the firm’s year-end target for the index was revised upwards to 1,950 points.
“The just-concluded fourth quarter results reporting season showed signs of weakness, again,” it said.
The firm, however, said that the market’s inherent strength is in line with the underlying stronger real economy as well as corporate earnings growth.
In a report today, the firm told clients to be cautious as the index approaches its target price, but should take the opporunity to buy on dips.
“We reckon that investors should only turn more aggressive if and when the index corrects below the 1,800-level,” it said.
Meanwhile, the analysts team at Maybank Investment Bank issued today a positive outlook for the market, but this is largely because they ar ecoming up from a low base.
The firm, in a report today, upgraded its target year-end for the index to 1,880 points.
“Near-term, we think the market would trade sideways on more cautious mode amid external headwinds on potentially stronger inflation prompting a faster pace of monetary policy normalisation,” it said.
“Our base case for end-2018 KLCI target is a status quo outcome from GE14,” it added.
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