CIMB Research's top three picks are Axiata, Dialog and Malaysia Airports.
KUALA LUMPUR: CIMB Equities Research has cut its end-2018 FBM KLCI target to 1,767 based on 15.4 times price-to-earnings (P/E) due to a weak corporate earnings in the first quarter ended March 31, 2018.
It said on Monday 2018 has got off to a weak start as corporate earnings revision ratio deteriorated to 0.31 times in 1Q18 after two consecutive quarters of gains (4Q17: 0.68 times and 3Q17: 0.43 times).
Also, earnings growth momentum slowed to 3% year-on-year in 1Q18 from 11% in 4Q17.
“This led us to downgrade our KLCI earnings by 3% for FY18F, resulting in slower KLCI earnings growth of 5% for FY18F (vs. 8% previously) and 8% for FY19.
“In line with this, we cut our end-2018 KLCI target to 1,767 (based on 15.4 times P/E),” it said.
CIMB Research said among the 129 companies that it actively covers, only 11% reported results that were above expectations in 1Q18 vs. 23% in 4Q17. The number of companies with results that were below its expectations grew from 34% in 4Q17 to 36% in 1Q18.
Our revision ratio (% of outperformers vs. underperformers) deteriorated to 0.31 times in 1Q18 vs. 0.68 times in 4Q17.
“We are disappointed that the revision ratio figure faltered after two consecutive quarters of improvement.
“The earnings disappointment was due to weaker crude palm oil and palm kernel prices, stronger ringgit against US$ which impacted export-oriented sector earnings as well as weaker-than-expected results from telcos, contractors and MISC,” it said.
CIMB Research said 1Q18 market earnings growth for stocks under its coverage slowed to 3% year-on-year (4Q17: 11% year-on-year) due to lower earnings from the agribusiness, shipping, technology and telecommunication sectors.
Corporate earnings growth of 3% in 1Q18 was also weaker than Malaysia’s GDP growth of 5.4% for the same period.
“The weak corporate results have led us to cut our market earnings for the stocks in our universe by 6%-7% for FY18-19, as we cut earnings forecasts for Axiata, Telekom and the banks.
“We have revised our top picks. Stocks added to our top big to mid-cap picks list are DRB-Hicom, Genting Plantations, KPJ Healthcare
, MPI (replacing Unisem), MyEG, Supermax
and Velesto Energy.
"In the small-cap picks list, we added Prestariang, Tan Chong and Signature (replacing Eita). We like the oil and gas, gloves and healthcare sectors,” it said.
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