The Borneo Post (Sabah)

‘Corporate round-up in 4Q18 among the worst in recent years’

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KUALA LUMPUR: Corporate earnings in the last quarter of financial year 2018 (4Q18) were amongst the worse seen in recent years, as huge misses in telco, transport and utilities sectors were enough to drag market earnings per share (EPS) growth into negative territory for the whole year.

The team at Affin Hwang Investment Bank Bhd (AffinHwang Capital) saw that on the surface, the 4Q18 reporting season looked better as 26 per cent of companies in its universe reported earnings that were ahead of expectatio­ns – a marked increase of 16 per cent in 3Q18.

“Moreover, companies whose earnings that disappoint­ed shrank to 31 per cent from 48 in 3Q18, implying that a higher number of companies delivered a better set of earnings after the successive disappoint­ments in the previous quarters,” it said yesterday.

“Needless to say, much of the positive key takeaways from the 4Q18 results ends there. Largecap companies turn into a drag, and what an impact it had!

“Looking at the larger-cap companies – represente­d by the KLCI components, with 27 of the 30 under our coverage – we saw a higher number of companies reporting poorer performanc­es; 33 per cent of the companies here registered earnings that were below our expectatio­ns, while a smaller proportion of 19 per cent also positively surprised.

“Being heavyweigh­ts, the impact of this disappoint­ment was significan­t. Cumulative 4Q18 core earnings fell a sharp 23 per cent year on year (y-o-y) or 14 per cent quarter on quarter (q-o-q), one of the largest ever quarterly earnings contractio­ns in recent years.”

Researcher­s at Kenanga Investment Bank Bhd (Kenanga Research) also noticed that earnings growth trajectory seemed volatile in the period due to a number of distortion­s caused by non-recurring events.

“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 per cent versus 30.8 per cent in 3Q18 and 32.2 per cent in 4Q17.

“On the other extreme, 21 per cent of the stocks under our coverage outperform­ed our expectatio­ns in this reporting season contrary to the mere 15 per cent 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 rerating catalysts.

“In fact, we saw a negative variance of 11.6 per cent against the actual reported FY18A results and an average 1.6 per cent cut in our FY19E earnings estimates for the 143 stocks under our coverage.”

While there was a greater amount of surprises and disappoint­ment vis-à-vis the previous reporting quarters, Public Investment Bank Bhd (PublicInve­st Research) said the amount of earnings revisions have been significan­tly smaller, suggestive of the fact that they had already been expected and accounted for somewhat.

“We are, however, slightly troubled at the fact that operating conditions for certain companies have deteriorat­ed to the extent that double-digit earnings cuts have had to be undertaken. Earnings cuts in previous reporting cycles were predominan­tly cost-driven, though not this time round,” it said in a separate note.

“What we see: The current result reporting cycle only saw notable cuts to the telecommun­ication sector. While carrying some weightage in the benchmark FBM KLCI, revisions were not as significan­t to be causing dents to current market sentiment.

“Reaction to this has been muted thus far, with the benchmark FBM KLCI only slipping 7.9pts last Friday, this just as likely due to mixed regional market performanc­es as much as domestic earningsre­lated issues.”

While PublicInve­st Research remain cautiously optimistic on the market, albeit with relatively muted upside expectatio­ns, it was also wary of the fact that current market sentiment is in the hands of one man who seems to be on a relentless drive in bending China’s will toward his.

“That said, we do think a deal willbeiron­ed out at some point as both parties still need each other in the grander scheme of things, with China likely to be the party making more of the concession­s,” it forewarned.

“This should help sustain market sentiment into the medium term as stuttering global trade – and economic growth – is reignited.”

 ??  ?? Analysts are slightly troubled at the fact that operating conditions for certain companies have deteriorat­ed to the extent that double-digit earnings cuts have had to be undertaken. — Reuters photo
Analysts are slightly troubled at the fact that operating conditions for certain companies have deteriorat­ed to the extent that double-digit earnings cuts have had to be undertaken. — Reuters photo

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