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Author: kltrader   |   Latest post: Fri, 22 Feb 2019, 09:55 AM

 

Malaysia Strategy – 3Q18 Results Wrap

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Macquarie Equities Research (MQ Research) released a report last night, wrapping up the results announcements for the 3rd quarter of 2018.  In a nutshell, though the 3rd quarter GDP painted a resilient picture, there has been some negative biasness with multiple sectors missing expectations.

Conclusion

  • While 3Q18 GDP data painted a relatively resilient picture re macro and the Ringgit bond market remains calm, an earnings growth-challenged equity market continues to be pressured by a combination of external growth risks (e.g. trade war escalation), and sector-specific challenges aggravated by domestic policy and regulatory uncertainties. Nonetheless, MQ Research believe beta is oversold while defensives like retail banks and gloves are fully valued; MQ Research recommends bottom-fishing quality stocks with structurally sound business models and balance sheets – besides thematic GLCs and selected Petronas subsidiaries, MQ Research favours banks, Inari, AirAsia and Time.

Impact

  • 3Q18 – negative bias consensus KLCI EPS forecasts have been moderated further i.e. now -2.5% and 4.9% for 2018 and 2019, respectively (vs -0.9% and 7.9% post-2Q18 reporting). While misses were anticipated (construction, property, plantations), a weak consumer sector (Padini a key bearish outlier) was a negative surprise given expected tax holiday spending bump. Banks continued to report broad resilience, with contained costs and ample liquidity / capital buffers, while telcos, ex-impairments, met core earnings forecasts.
  • Coverage highlights: 3Q reporting reinforces key recommendations i.e. re outperforms, MISC (new coverage, narrowing petroleum division loss), RHB Bank (dividend payout to rise), AirAsia (moderating costs, yield upside) and sold-down Telekom (capex, cost clarification catalysts). Re underperforms, MQ Research lowered target price for Petronas Gas ahead of Jan 19 IBR implementation and Genting (M) on double whammy of gaming tax hike and outdoor theme park suspension; MQ Research also initiated coverage on integrated agribusiness player QL Resources.
  • KLCI target – base vs bull: revised MQ forecast 2018/19 earnings growth of 0.7% and 7.5% (vs 4.0% and 9.9% post-2Q18 reporting) and enduring external/policy uncertainties mean market multiples are unlikely to re-rate off current 5yr lows, hence base case 12mth KLCI target based on aforementioned 2019 earnings growth is 1,775 (+7.5% or 17x 2019E PER). Strong delivery on market thematics would put MQ Research’s bull case bottom-up 12mth KLCI target of 1,889 (+14% or 18x 2019E PER) within reach.

Outlook Favoured Khazanah-GLCs are Tenaga, Telekom, Axiata and CIMB; for Petronas subsidiaries, MQ Research likes PChem and MISC. Re sectors, MQ Research favours banks (Maybank, RHB preferred over Public Bank, HLBK), transport / logistics (AirAsia/Westports) and exporters (Inari, Vitrox). PGas, BAT, IHH and QL are MQ Research’s big-cap non-consensus Underperform ratings.

Source: Macquarie Research - 13 Dec 2018

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