CY2Q13 Report Card

For the tenth consecutive quarter, CY2Q13 reporting season was again disappointing. EPS growth was largely intact but subject to review as government’s move to delay high import content project to help mitigate the shrinking current account surplus will be at the expense of slower economic growth.

Among HLIB universe, 23 (vs. 23 in CY1Q13) were below expectations while only 13 (vs. 13) surprised on the upside. Against consensus, 28 (vs. 29) were below while only 12 (vs. 12) came in above (see Figure 1).

The number of sectors that disappoint increased to 10 (Banking, Brewery, Building Materials, Conglomerates, Gaming, Healthcare, Media, O&G, Plantation and Technology) vs. 7 but only 3 sectors (Property, Telecommunication and Transportation) surprised on the upside.

HLIB had 30 (vs. 16 in CY1Q13) earnings downgrades but only 11 (vs. 17) earnings upgrades (see Figure 2). The revision ratio deteriorated to 2.73x (i.e. for every earnings upgrade, there were 2.73x downgrades) from 0.94x in CY1Q13.

The earnings downgrades were well spread across sectors with three downgrades each from Automotive, Building Materials, Construction and O&G. Meanwhile, Brewery, Conglomerates, Gaming, Plantations, Property, Technology and Transportation saw two earnings downgrades each see Figure 2). On the other hand, earnings upgrades also well spread across several sectors as none of the sector have more than 1 upgrade each, except Property (2 upgrades).

In terms of recommendation, there were 6 downgrades but 4 upgrades. The downgrades were largely due to earnings disappointment. As for the upgrades, it was in various sectors. For details, please see Figure 3.

Given the disappointment, 2013 EPS growth was cut to 6% from 6.3% (pre reporting season) but 2014 EPS growth (despite against the backdrop of slower economic growth) improved to 9.5% from 9% previously mainly due to lower base effect. We have also introduced 2015 EPS growth at 6.5%. Please see Figure 4.

Source:Hong Leong Investment Bank Research- 3 Sep 2013