For the 3Q22 results season, 47% come in within HLIB/consensus expectations, 28%/31% above and 25%/22% below. Sequentially, the ratio of % results above/below rose from 0.87x to 1.14x. Positive results surprises came from Brewers, O&G and Property, while disappointments stemmed from Gloves, Genting Group, Tech and Wood/Furniture manufacturers. Aggregate core earnings for our coverage universe in 9M22 was flat YoY (+0.4% YoY; +27.2% YoY ex Gloves). We keep our end-CY22 KLCI target at 1,530 and our bet for a positive Dec showing.

3Q22 results wrap up. For the recently concluded 3Q22 results season, of the 116 stocks under our coverage, 47% came in within expectations, 28% above and 25% below. When stacked against consensus estimates, 47% were inline, 31% above and 22% below.

Slightly better showing. Compared to the preceding quarter (i.e. 2Q22), there was a slight reduction in disappointments (26% to 25%), while positive surprises increased (22% to 28%). Consequently, from a ratio perspective (% of results above/below, this rose QoQ from 0.87x to 1.14x.

Surpasses and misses. Notable positive results surprises came from Brewers (higher ASPs and better sales mix from premium brands), O&G (mostly company specific factors) and Property (stronger-than-expected sales, especially from completed and near-completed projects). On the flipside, disappointments largely stemmed from Gloves (volume decline, soft ASP and rising cost), Genting Group (dragged by GenM on higher-than-expected interest and tax), Tech (slower PC and smartphone demand) and Wood/Furniture manufacturing (weaker furniture demand due to falling US home sales).

Flattish earnings. We estimate that aggregate core earnings for our coverage universe rose +6.9% QoQ (continued merits from endemicity) and +20.3% YoY (low base as SPLY was marred by Phase 1 lockdown) – noting though that in both periods, the overall positive earnings growth was partially offset by weaker performance for Gloves (weaker ASP) and Plantation (average CPO price: -39% QoQ, -11% YoY). Cumulative 9M22 aggregate earnings was flat (+0.4% YoY) – while most companies saw earnings improvement, this was more than offset by the cliff dive in Glove earnings (9M22 ex Gloves: +27.2% YoY).

Outlook. With the post GE15 political impasse resolved and the Cabinet unveiled over the weekend, this points to some degree of political stability – at least in the near term. Externally, the Fed is expected to reduce its quantum of rate hikes as soon as Dec – a cheer for markets considering that its pace this year has been the fastest in recent history. Nevertheless, we remain cognisant on the potential challenges in 2023: (i) rising probability readings of a US recession over the next 12 months and (ii) re emergence of domestic political fluidity – six state elections are due to be held in 2H23 which may have implications on the working relationship within this Unity Government.

Forecast. We project CY22/23 KLCI earnings growth of -8.2%/+6.9%.

KLCI target at 1,530. Maintain end-CY22 KLCI target at 1,530 based on 15.4x PE (- 1SD 5Y) tagged to mid-CY23 EPS. Our CY23 KLCI target is at 1,580 (15.4x PE on end-CY23 EPS). We advise to accumulate on any weakness to bet on the probability of a positive Dec from the “window dressing effect” – post GFC, KLCI registered positive Dec returns in 11 out of the past 12 years (92% hit rate).

Source: Hong Leong Investment Bank Research - 6 Dec 2022