The recently concluded 1Q19 results season showed signs of improvement, but stronger catalysts are needed. For the quarter, sectors such as (i) Building Materials, (ii) Media and (iii) Semicon/Technology were weaker-than-expected, while (iv) Gaming and (v) Healthcare sectors delivered mix-to-negative performance. On the other extreme end, while there were no outright outperforming sectors, we noticed that Gloves players have shown some positive developments despite facing headwinds, as the ASP pressure was not as severe as expected, suggesting a milder oversupply situation. Post review, we fine-tuned our FY19E/FY20E earnings growth rates for FBMKLCI to 14.7%/3.6% from 17.6%/2.4% previously. With some tweaks in analysts’ target prices, we also lower our end-2019 Index Target to 1,745 (from 1,750 previously). We also maintain our OUTPERFORM calls on BAUTO (TP: RM2.85↑), PWROOT (TP: RM1.75↑), BJTOTO (TP: RM2.95↑), MAYBANK (TP: RM10.35↑), CMMT (TP: RM1.25↔), MBMR (TP: RM3.45↔), MBSB (TP: RM1.15↔) and SAPNRG (TP: RM0.430↑). We also selected TAKAFUL (OP↔; TP: RM6.50↑) and AEON (OP↔; TP: RM2.10↑) to replace BURSA (TP: RM6.85↓) and PADINI (TP: RM4.00↓). In terms of Trading Signal, while there is no new concrete long-term signal emerging at this juncture, we notice that some market indicators have shown signs of turnaround.

Early sign of improvement? The recently concluded 1Q19 results season showed signs of improvement, but stronger catalysts are needed. Out of 138 stocks under our core coverage, 39 of them delivered weaker-than-expected results, implying a “disappointment ratio” of 28.3% (vs. 30.1% in 4Q18 or 30.8% in 3Q18 and 37.8% in 1Q18). However, on the other extreme, merely 13.0% of the stocks under coverage (or 18 stocks) outperformed our expectations in this reporting season against a higher number of 21% (or 30 stocks) in the previous quarter. While the improvement could be owing to the generally low market expectation, the lower number of stocks that registered outstanding results suggests that a stronger re-rating catalyst is required.

Sector-wise, (i) Building Materials, (ii) Media, and (iii) Semicon/Technology were weaker, while (iv) Gaming and (v) Healthcare sectors also delivered mix-to-negative performances (see Figure 8 for details).

• Building Materials: ANNJOO and PMETAL came in below our expectations largely due to higher input costs and lower average selling prices (ASPs).

• Media: Uninspiring results in 1QCY19 on persistently weak advertising revenue.

• Semicon/Technology: On average, the semicon/tech companies reported 63% QoQ decline in earnings due to seasonality, while YoY, earnings dropped by an average of 36% owing to a slowdown in the semiconductor sector and consumer spending.

• Gaming: Casino numbers missed our estimates despite a good showing by NFO (number forecast operator) players. The disappointment in casino sub-segment could probably due to our overly optimistic expectation.

• Healthcare: While IHH and PHARMA came inline with expectations, KPJ was weaker due to lower-thanexpected revenue per inpatient. On another extreme end, there were no outright outperforming sectors. However, we notice that gloves players have shown some positive tones despite facing headwinds; such as (i) short-term oversupply, (ii) intense competition, and (iii) ASP pressures. Nevertheless, we observed that the ASP pressure was not as severe as we experienced in the previous round of oversupply situation, suggesting a potential milder oversupply condition.

Source: Kenanga Research - 4 Jun 2019