The just-concluded 4Q18 reporting season showed minor signs of improvement. Sectorwise, (i) Aviation, (ii) Construction, (iii) Plantation, (iv) Property, (v) Telco, (vi) Technology, (vii) Transportation & Logistics as well as (viii) Utilities sectors delivered mix-to-negative results while (i) Banks & Non-Bank Financials as well as (ii) Gaming sectors were relatively stronger with a more positive tone in their recently released results. We also notice that earnings growth trajectory seems volatile due to a number of distortions caused by nonrecurring events. Based on reported net profits, our FBMKLCI’s FY18A/FY19E/FY20E earnings growth rates are recorded at -10.1%/14.2%/3.4% (vs. Bloomberg consensus of - 23.2%/27.0%/6.3). Howver, if we adopt core earnings numbers, then the FY18A/FY19E/FY20E growth rates would be registered at 3.6%/-0.9%/3.4%. In line with our earnings and target price downgrades, we have fine-tuned our end-2019 index target lower to 1,735 (from 1,775 previously), representing FY19E/FY20E PERs of ~16.5x/16.0x. Post results revision, we continue to like AEON (OP, TP: RM2.00 ↔), BIMB (OP, TP: RM5.05 ↔), MBMR (OP, TP: RM3.45 ↑), MPI (OP, TP: RM13.00 ↔), OCK (OP, TP: RM0.650 ↑), PADINI (OP, TP: RM4.25 ↑), PESTECH (OP, TP: RM1.40 ↓), PIE (OP, TP: RM1.90 ↑), PWROOT (OP, TP: RM1.65 ↔) and TCHONG (OP, TP: RM2.15 ↑).

Same old, same old. The recently concluded 4Q18 results season showed minor signs of improvement. Out of 143 stocks under our core coverage, 43 of them delivered weakerthan-expected results, implying a “disappointment ratio” of 30.1% (vs. 30.8% in 3Q18 and 32.2% in 4Q17). On the other extreme, 21% of the stocks under coverage (or 30 stocks) outperformed our expectations in this reporting season contrary to the mere 15% (or 22 stocks) in the previous quarter. We believe the improvements were due mainly to the generally low market expectations previously. Nonetheless, the improvements may not be exciting enough to serve as re-rating catalysts. In fact, we saw a negative variance of 11.6% against the actual reported FY18A results and an average 1.6% cut in our FY19E earnings estimates (for the 143 stocks under our coverage).

Sector-wise, (i) Aviation, (ii) Construction, (iii) Plantation, (iv) Property, (v) Telco, (vi) Technology, (vii) Transportation & Logistics as well as (viii) Utilities sectors delivered mix-to-negative perfomances (see Figure 8 for details).

• Aviation: Two stocks under our coverage, namely AIRASIA and AIRPORT, registered disappointing performance, compared to 3QCY18, due mainly to higher-than-expected maintenance costs.

• Construction: We saw similar numbers of disappointment in contrast to 3QCY18 (4 disappointments out of 11 stocks under our coverage). Stocks which came below expectations are GKENT, HSL, IJM, and MITRA. Their weak performances were caused by projects cost review, which resulted in lower progress billing and compression in margins.

• Plantation: It seems to be another beaten-up quarter, where 8 out of 13 companies under our coverage missed our forecasts and consensus estimates. All planters under our coverage recorded lower CPO prices (with an average YoY decline of ~20%), overshadowing the sector’s flat FFB growth (+4%).

• Property: Out of 15 developers under our coverage; almost half of them (i.e. LBS, MAGNA, MAHSING, MRCB, SIMEPROP, SPSETIA, SUNSURIA) delivered lower-than-expected numbers due to weaker billings, margin compressions and/or inventory impairments.

• Telco: Reported uninspiring results, as both MAXIS and AXIATA reported disappointing FY18 numbers due mainly to the higher-than-expected Opex and D&A charges.

Source: Kenanga Research - 4 Mar 2019