ANALYSTS are divided over whether the Malaysian stock market will outperform expectations after 30 of the largest companies on Bursa Malaysia posted disappointing quarterly results.
Aggregated reported earnings of constituents in the FBM KLCI 30, an index comprising 30 of the biggest companies by market capitalisation on the bourse, totalled RM12.65 bil for the third quarter of calendar year 2019 (3QCY19). This was an 8.1% quarter-on-quarter (qoq) drop from RM13.77 bil in 2QCY19.
TA Securities and AmInvestment Research are pessimistic over how the index will end this year. TA slightly cut its FBM KLCI target for end-2019 to 1,610 points and AmInvestment to 1,580 points from 1,650.
According to TA, core earnings of stocks under the research house fell by 5.3% year-on-year, led by underperformance across most sectors. But the largest decliners, sector-wise, were banking and oil and gas, it said in a Dec 3 note.
TA is expecting earnings per share of companies under its coverage to “contract by 5.3% in CY19 before expanding by 8% in CY20.”
AmInvestment noted that while December was traditionally “a good month” for the bourse, that might not be the case this time around.
“We believe year-end window-dressing activities, if any, are likely to be weighed down by the subdued sentiment towards the local stock market, which has been made worse by the recent de-rating of national utility company Tenaga (which carries close of a 10% weighting in the FBM KLCI) on the heels of an additional RM4 bil tax assessment received from the Inland Revenue Board (IRB),” the house said in a Dec 2 note.
On Nov 28, the IRB said Tenaga owed a total of RM3.98 bil for assessment years 2015 to 2017. The bill comprises RM1.43 bil for 2015, RM1.24 bil for 2016 and RM1.3 bil for 2017. Tenaga has begun legal proceedings against the IRB.
But research firms attached to state-owned banks drummed to a different beat. Affin Hwang Capital had maintained its year-end target of 1,650 while MIDF Research kept its baseline target of 1,630 points.
Affin noted the earnings revision trend remained negative, citing large-cap disappointments under its coverage especially in the O&G, telecommunications and aviation sectors. But “the downside should be limited by ample domestic liquidity and a current dividend yield of 3.6%,” it said in a Dec 3 report.
MIDF said that while the 3QCY19 earnings were rather “listless and failed to excite” its aggregate forward earnings estimates, downward adjustments were rather “lumpy” and not “broad based”, with the drag concentrated in a small number of companies.
“Moreover, it is notable that (1) the ratio of outperformers to underperformers among the FBM KLCI constituents under our coverage improved in 3QCY19 vis-a-vis the preceding quarter, and (2) the percentage of underperformers among the stocks under our coverage showed a sequential decline during the quarter. We maintain our year-end 2019 baseline target for the local benchmark at 1,630 points,” the house said in a Dec 3 note.
All four research houses, however, believe that 2020 will be a better year with predictions that the FBM KLCI will breach the 1,600 mark.
