KLCI earnings may rise by 5.3% in 2018

PETALING JAYA: AmBank Research, which called the first quarter reporting season “a tad discouraging”, has projected FBM KLCI’s earnings to grow by 5.3% and 7.1% in 2018 and 2019, underpinned by a gross domestic product growth of 5.5% and 5.3% respectively.
Its year-end targets of the local bourse are forecast at 1,900 points and 2,040 points in 2018 and 2019 respectively.
“While the 1Q 2018 reporting season has been a tad discouraging so far, it has not derailed the positive growth trajectory of FBM KLCI’s earnings,” the research house said.
It said at about two-thirds through the 1Q 2018 reporting season (68% of its stock universe having reported), corporate earnings have thus far been relatively unremarkable – with 9%, 64% and 27% beating, meeting and missing its projections respectively.
“In terms of earnings growth forecasts of ‘all sectors’ – a broader but slightly more volatile earnings gauge encompassing the entire universe of our stock coverage – the numbers for 2018 and 2019 have been adjusted to 11.4% and 10.4%, from 15.6% and 10.6% previously,” said AmBank.
It believes the key catalysts for the FBM KLCI could come from the normalisation of the market risk premium as greater clarity on new government policies emerges; improved sentiment towards emerging markets, which are experiencing an outflow of funds at present, and a more level playing field across sectors that may unleash the growth potential in corporate Malaysia.
On the other hand, FBM KLCI could also be weighed down by stronger-than-expected US inflation and wage growth which could lead to a steeper rate hike cycle in the US and a stronger US dollar, which could spur more outflows from emerging markets; the escalation in the US-China trade war and geopolitical tensions; as well as earnings disappointments from FBM KLCI heavyweights.
“For exposure to consumer spending, we pick banks with strong consumer banking franchise (Public Bank and BIMB), apart from consumer/auto stocks (Berjaya Food, Power Root and Bermaz). We like exporters that benefit from strong external demand (Top Glove, V.S. Industry and Inari Amertron). Against a backdrop of firm oil prices, we pick certain defensive oil & gas names (Yinson and Dialog).”
According to Rakuten Trade Sdn Bhd head of research Kenny Yee, the local bourse is expected to trend between 1,750 and 1,800 points in the short term.
The FBM KLCI closed 21.56 points or 1.2% lower to 1,775.84 points on Monday on continued selling pressure.
Yee told SunBiz that the KLCI will trade below 1,800 points for the time being before improving later this year.
“Fundamentals remain solid as depicted from the ongoing results for first quarter which have been rather decent so far. For us, we remain positive with our 2018 KLCI target still at 1,960 barring any nasty surprises from Malaysian corporates despite the uncertainties overshadowing the construction and toll concessionaires at the moment,” Yee explained.
Meanwhile, Nomura Securities Malaysia Sdn Bhd head of equity research Tushar Mohata said he is neutral on the local stock market as the new government should be given the benefit of the doubt to come out with their economic policies and direction to address some of the fiscal concerns which appears to worry investors.