Q2 earnings revision ratio at all-time low, says CIMB

Earnings let down by agri, construction, media and tech sectors

PETALING JAYA: CIMB Research saw its revision ratio for the recent earnings season deteriorate to an all-time low of 0.19 times compared to 0.31 times in the preceding quarter and 0.26 times in the same period a year ago.

The revision ratio refers to the percentage of companies that reported earnings which exceeded expectations against the percentage of those that saw earnings come in below expectations.

The research house said the earnings disappointments were mainly from the agriculture, construction, media and technology sectors.

Of the 129 companies it actively covers, only 7% reported results that were above expectations in the second quarter, compared to 11% in the preceding quarter.

The number of companies with results below its expectations remained at 36%, the same as in the preceding quarter, but higher than the 35% in second quarter 2017.

Companies which reported results in line with expectations, however, rose from 53% in first quarter 2018 to 57% during the recent quarter.

“We are disappointed that the revision ratio figure has continued to falter; this could be due to the uncertain domestic and external environments.

“The earnings disappointment was due to weaker crude palm oil prices and a stronger ringgit against the US dollar, which impacted the export-oriented sector’s earnings,” it said in a report.

The research house added that market earnings growth for stocks under its coverage in second quarter 2018 remained weak at 5% year-on-year, compared to a growth of 3% in the first quarter, due to lower earnings from the agribusiness, aviation, utilities and transport infrastructure sectors.

It noted that the corporate earnings growth of 5% in second quarter 2018 was also slightly higher than the country’s GDP growth of 4.5% during the period.

Following the weak results, CIMB Research cut its market earnings for stocks in its universe by 2%-3% for financial year 2018-2019, as it lowered its earnings forecasts for the banking and agribusiness sectors. This resulted in slower FBM KLCI earnings growth of 5% for 2018, from 6% previously.

It also fine-tuned its end-2018 FBM KLCI target to 1,684, from 1,675 points to partially reflect the anticipated earnings downgrade.

It has removed BRITISH AMERICAN TOBACCO (M) BHD, MALAYAN BANKING BHD, Bonia Corp Bhd, Supermax Corp Bhd and SIGNATURE INTERNATIONAL BHD from its top picks list, while maintaining its top three picks of Dialog Group Bhd, GENTING BHD and Westports Holdings Bhd.


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