Affin Hwang cuts market EPS growth estimates

by FARA AISYAH / TMR file pix

Affin Hwang Capital Research has downgraded its market earnings per share (EPS) growth estimate for 2018 to negative 0.6%, compared to 4.7% in the second quarter 2018 (2Q18) roundup, with the plantation, utilities and transportation sectors accounting for most of the downgrades.

The EPS growth estimate for 2019 has also been reduced to 6.4% from 8.4% in the 2Q18 roundup.

On a brighter note, the research house said most of the sectors with overweight ratings continued to register earnings growth, while stock rating upgrades in 3Q18 exceeded downgrades, possibly indicating the benchmark FTSE Bursa Malaysia KLCI Index (FBM KLCI) has found its bottom.

As such, it maintains market overweight and 2018 year-end target of 1,845 points for FBM KLCI.

“Notably, the negative EPS growth estimate for 2018 takes us back to the years of 2015 and 2016 when the market registered an EPS decline of 1.6% and 2% respectively.

“Nevertheless, while the broader market continues to see weaker earnings, the earnings momentum for the KLCI 30 companies is still positive

and we are still projecting 2018 and 2019 EPS growth of 3.1% and 3.2% respectively,” it said in a strategy research note last Tuesday.

Affin Hwang Capital remains overweight on eight of the 18 sectors under its coverage, namely banks and financials, gaming, healthcare, insurance, rubber products, utilities, auto and auto parts, and oil and gas.

It does not make any changes to its ‘Top Buy’ calls which include Malayan Banking Bhd, Serba Dinamik Holdings Bhd, UMW Holdings Bhd, Tenaga Nasional Bhd, Kossan Rubber Industries Bhd, KPJ Healthcare Bhd, AEON Credit Service (M) Bhd and QL Resources Bhd.

For the small/mid-cap space, Affin Hwang Capital favours Globetronics Technology Bhd and Supermax Corp Bhd.

The research firm removed Lafarge Malaysia Bhd from its ‘Top Sell’ list as it thinks the cement maker’s stock price has bottomed out.

As such, it replaces Lafarge with AirAsia X Bhd which it thinks will likely underperform due to the high fuel cost and intense competition.

The investment bank said large-cap stocks continued to outperform their smaller peers in terms of earnings delivery.

Of the KLCI component companies under coverage, 53.8% reported earnings that were in line with expectations (compared to 36.1% for its entire coverage of 119 stocks).

While this ratio was lower compared to 2Q18, it was surprised by the number of large-cap companies that beat expectations this quarter including DiGi.Com Bhd, Maxis Bhd, Telekom Malaysia Bhd, RHB Bank Bhd, Malaysia Airports Holdings Bhd and Petronas Chemicals Group Bhd.

The benchmark FBM KLCI closed at 1,680.54 last Friday, lower by 2.8 points or 0.17%, amid overnight losses in the US market.