Highlights

• 4Q17 results wrap up. With the 4Q17 results season recently concluded, out of the 110 stocks under our coverage, 64 (58%) came in within expectations, 27 (25%) were below and 19 (17%) were above. Against consensus estimates, 52% were inline, 31% below and 17% above.

• Fewer disappointments; more inline and above. 4Q17 was the 2 nd consecutive quarter of (i) increase in results that were inline and above and (ii) decrease in those below. The proportion of results within expectations (58%) was the highest in 4 years, while those that disappointed were at the lowest (25%). From a ratio perspective (i.e. % of results above/ below), this came in at 0.7x (improving from 0.39x in 2Q17 and 0.24x in 1Q17) and was the highest since 4Q15.

• Cost the main driver for disappointments. Of the 27 companies that reported result disappointments, 15 (55%) were due to cost factors (i.e. raw material, interest and tax), 8 (30%) were attributed to revenue factors and 4 (15%) resulted from a combination of both. Also, 6 (22%) out of the 27 result disappointments came from those that were loss making, arguably making forecasting tougher.

• Improving revision ratio. In terms of earnings revision, 58% were unchanged, 22% upwards and 20% downwards. The earnings revision ratio (i.e. upward/ downward revision) came in at 0.92x, representing the 2 nd consecutive quarter of increase and also the 2 nd highest in 4 years.

• Strong end for earnings. We estimate that FBMKLCI registered a 10% earnings growth for 2017 with the key drivers being banks, plantations and gaming. Our FBMKLCI earnings growth forecast for 2018 remains relatively unchanged at 7.8%.

• Foreigners were net sellers in Feb. Although foreigners were net buyers in Dec (+RM1bn) and Jan (+RM3.3bn), the trend reversed to net sellers in Feb (-RM1.2bn). Cumulative net foreign inflow (measured since Jan 2011) was in negative territory since July 2015 but finally reverted to positive for the months of Jan and Feb this year.

Risks

• Growing expectations that the Fed would embark on 4 rate hikes instead of 3 could potentially (i) weigh down on US equities causing a spill over effect to emerging market equities such as Malaysia and (ii) spur an eventual depreciation of the MYR against USD.

Valuation

Maintain 2018 FBMKLCI target of 1,880

• We remain positive on Malaysian equities on back of a stronger ringgit, domestic consumption revival and higher foreign inflow post 14GE. Our unchanged FBMKLCI target of 1,880 is based on 16.5x (0.5SD above mean) P/E tagged to 2018 earnings.

Stock Picks

• Our top picks remain unchanged, of which, 7 out of 10 came in within expectations. Genting and MB World were above expectations while MAHB was below.

Source: Hong Leong Investment Bank Research - 5 Mar 2018