Highlights A mixed performance in 4Q (33% outperform; 37% underperform and 30% in line)

• The recently concluded 4Q2021 reporting season showed a mixed performance. More companies underperformed compared to outperformers but the variance is small – 37% of the stocks under our coverage registered lower-than-expected earnings while 33% of them outperformed. About one third of these companies reported earnings which met expectations.

Plantation, Healthcare and Automotive Sectors Outperform

• The plantation sector outperformed as five out of the seven companies we cover posted results that beat expectations. This was achieved on the back of better-than-expected operating profit margins. The downstream operations of the integrated companies also did well as selling prices increased to mitigate the rising costs of raw materials. In spite of the positive results, we believe that the increase in the share prices of the plantation of the companies of more than 30% in the past month has already reflected the surge in CPO prices. We believe that at the high level of CPO prices currently, there is more downside than upside. As such, we are UNDERWEIGHT on the sector.

• The healthcare sector outperformed. Both IHH Healthcare and Apex Healthcare registered stronger-than-expected FY21 earnings. IHH’s FY21 earnings outperformed due to higher-than-expected earnings from its Singapore operation. Meanwhile, Apex Healthcare FY21 earnings also beat expectation due to strong demand for its pharmaceutical products.

• The automobile sector’s results outperformed with four (MBM Resources, UMW Holdings, Sime Darby, and Tan Chong Motor) out of six companies under our coverage reporting stronger-than-forecasted earnings. The positive earnings surprise was predominantly driven by strong sales volume during the quarter due to pent-up demand and year-end promotions. Auto firms’ margin also improved during the quarter following better operating leverage.

P Power and Glove Sectors Disappoint

• Results of the power companies were disappointing with two below and one within expectations. Malakoff and YTL Power’s earnings fell short. Malakoff was dragged by an unplanned outage at the TBE power plant and write-offs and impairment of assets while YTL Power was affected by high fuel costs in Singapore and donation to a corporate social programme.

• The glove sector’s earnings were below expectations. All three glove companies that we cover – Top Glove, Hartalega and Kossan – reported earnings which missed expectations. The negative deviation for all three companies was due to similar reasons – lower-than-expected gloves average selling price (ASP) and weaker-than-expected sales volume.

2022 FBM KLCI target increased to 1,651 points (from 1,600 points)

• We raise our end-2022 FBM KLCI target to 1,651 points (from previously 1,600 points). Our earnings’ estimates for the FBM KLCI have been increased and we are now estimating a negative 1.2% earnings growth for 2022, which is better than the negative 3.5% earnings growth estimated previously. The higher earnings estimate is due to higher CPO price assumption for 2022 at RM4,000 per tonne (from RM3,000 per tonne).

• Our target PE is unchanged at 15.6x forward PE to 2022 earnings, pegged to -0.5 standard deviation (SD). The discount is to reflect the negative earnings growth projected for total FBM KLCI component earnings in 2022 and a higher stamp duty for share transactions which will affect trading volume. Our Top 10 BUYs remain unchanged – Maybank, Tenaga, RHB Bank, MR. DIY, Telekom, Dialog, Inari, MPI, Bermaz Auto and Apex Healthcare.

Source: AmInvest Research - 2 Mar 2022