• Recently concluded 2Q18 earnings season were slightly disappointing

• Most KLCI companies were largely in-line, although 6 came below estimates

• Key disappointment was plantation sector, as ASP and production declined

• Focus to remain on US-China trade issues and emerging currencies performance

Earnings disappointed slightly

Corporate earnings season for 2Q18 which ended last week, continued to see poor earnings largely from 2 sectors, plantation and construction. Earnings growth expectation for KLCI companies have gradually receded since the beginning of the year. As highlighted previously, the slowdown in earnings momentum reflect the volatility in the commodity market – CPO price realised by companies has been disappointing, as well as production – and the shifting economic and fiscal landscape for Malaysia, in our view. For the construction sector, earnings continued to decline following on from a poor 1Q18 due to postponement of major projects.

Corporate aggregate earnings growth for KLCI companies for 2018 saw some adjustments for a 3.7% growth post-2Q18 results, as opposed to 7.5% expected at the beginning of 2018. Meanwhile, expectation for 2019 is now tempered to 8.2% yoy, versus 8.4% post-1Q18 season. It is important to note that analysts were expecting 2019 earnings to grow by only 5.5% yoy as at January 2018.

We estimate the 30 companies in the FBM Hijrah Shariah to register a growth of 4.5% in 2018 versus 3.4% projected following first quarter earnings in February. However, earnings for 2019 were downgraded to 6.7% currently as opposed to 8.0% post-1Q18 reporting season. The main reason for the earnings downgrade for 2019 is largely due to weaker plantation profitability, which account for 13% of FY18 aggregate earnings.

Source: BIMB Securities Research - 3 Sept 2018