Preliminary aggregate earnings inline with expectation (FBM KLCI 2012 Year-end Target: 1,600)
Aggregate earnings so far fell within expectation. As of yesterday, almost 36% of all stocks under the MIDFR Universe have released their 2QCY12 results. Based on these initial numbers, the aggregate actual earnings in 2QCY12 recorded a slight 1.5% negative variance against our aggregate estimated earnings. Nonetheless we opine the total earnings percentage shortfall was small enough for us to conclude that the 2QCY12 results have so far met our expectation.
MIDFR Universe: Aggregate earnings by sector (reported results as of 16 Aug 2012)
Finance the main outperformer, Transport the biggest underperformer. Sectors which have thus far outperformed earnings expectations include Finance, Utility, Glove, Healthcare and Tobacco. On the other hand, Transport, Semiconductor, Automotive, Oil & Gas and Plantation sectors have hitherto produced materially less than estimated earnings figures. However bear in mind that these early verdicts may change drastically as more results stream in during the next two weeks.
Outperformers:
Finance. Represented by Bursa Malaysia, its net profit was lifted above expectation due to lower operating expenses. We thus adjusted our net profit estimates for FY12 and FY13 upwards from RM133.7m and RM147m to RM149.3m and RM163.6m respectively. The adjustment was largely due to upward revision in our stable income estimates to reflect higher listing fees
Utility. Reflecting the performance of Tenaga Nasional, the sector reported a significant improvement in its core net profit of RM883.7m against the RM500.0m core net loss in corresponding period last year. The boost in core earnings was mainly attributed to lower coal price.
Glove. Topline growth was attributed to improvement in sales volume on the back of higher demand for gloves from both the developed and emerging markets. Moreover, bottomline was boosted by higher sales and a more conducive operating environment, which saw the decline in latex prices. This was complemented by the appreciation of US Dollar against Ringgit Malaysia during the same period.
Tobacco. Growth in earnings was contributed by higher revenue. Revenue growth was in turn attributed to higher domestic volume. Tobacco players benefited from higher sales volume, a result of an absence of excise hike and greater enforcement to curb illicit trade activities.
Underperformers:
Transport. The negative earnings variance of the Transport sector was mainly attributable to MAS. MAHB performed within expectation while Century Logistics earnings shortfall was nominally small. In 2QCY12, the core net loss of MAS was reduced to –RM161m but it was nonetheless higher than our earlier estimate. Hence we increased our FY12 net loss estimate for MAS to –RM644m to reflect the delay in MAS turnaround plan.
Semiconductor. Revenue and earnings were affected mainly due to lower average selling price arising from change in product mix.
Automotive. Despite higher sales volume, earnings underperformed expectation owing to (i) supply constraints because of the lingering aftermath of Thailand flood, (ii) strengthening of Yen, as well as (ii)
tighter lending regime imposed early this year.
Oil & Gas. MMHE’s bottomline was impacted by timing recognitions from new contracts and a one-off provision for bad-debt, as well as delay in project completion date. Additionally, the gas processing business of Petronas Gas was affected by lower performance-based structure income resulted from lower export volume and lower prices for propane and butane.
Reiterate FBM KLCI year-end target of 1,600 points. Going forward, barring adverse earnings results performance, we expect the market to retain its current upward momentum. Having said that, in the absence of major positive earnings surprises, we reckon the local market upper reach will increasingly be limited by the already premium relative valuation vis-à-vis other regional bourses. Furthermore, the ebb and flow of liquidity may also render the market vulnerable to short-term cyclicality. Hence we reiterate our FBM KLCI year-high target of 1,670 points and our year-end target of 1,600 points
by Mercury Securities 17th August 2012
