• KLCI aggregate forecast earnings growth for 2018 has been tempered from 3.7% in August to 2.0% currently.

• Hijrah Shariah 30 companies are also seeing growth slowing from 4.5% expected in August to only 2.4%.

• The revised outlook is reflective of slower GDP and lower CPO

• We expect further downgrade in 2019 earnings post-3Q18

Earnings growth has dissipated

One of the key issues which we have been closely monitoring is the level of earnings growth that is expected by the market/analysts for 2018 and next year. Against the backdrop of a slowing GDP growth this year – Malaysia’s GDP to slow to 4.8% against 5.3% expected at the beginning of this year – KLCI aggregate earnings growth have seen several revisions. The latest KLCI earnings growth for 2018 is estimated at 2.0% versus 3.7% expected in August 2018. Judging from the 10 KLCI-companies that have released their earnings this month, we expect further revisions post-3Q18 completion.

Economic headwind may still temper 2019 growth expectation

We see similar downward risk for 2019 earnings. Since August, total KLCI earnings growth has been cut from 8.2% to 6.9%, whilst for the Hijrah Shariah, growth estimate was revised from 6.7% to 5.1%. Please refer Chart 1 and 2 below. We currently estimate a base case earnings growth of 5.0% for 2019. Against the backdrop of the weaker earnings growth for 2019, we recommend selective stock picks. Apart from ability to generate better earnings, we advocate choosing companies that possess critical attributes, such as positive cashflow, and robust business model.

Source: BIMB Securities Research - 16 Nov 2018