Fewer positive earnings surprises in 4Q, says Kenanga Research

THERE were fewer positive earnings surprises in the last three months ending December 2023 on the local stock exchange.

In a report released today, Kenanga Research said the FTSE Bursa Malaysia KLCI (FBM KLCI) component stocks reported less positive earnings surprises in 4Q23 as compared with three months ago.

It noted that the slowdown in consumer demand both locally and globally, coupled with the prolonged geo-political tensions in the Middle East, particularly the escalating conflict in the Red Sea, were headwinds to earnings.

On a brighter note, it said the easing in operating cost, particularly personnel cost, and improved pricing power buoyed earnings of oil and gas support services providers, while technology players guided for an upbeat outlook for 1Q24.

It has projected FBM KLCI earnings to grow slightly higher, at 16.3% in 2024, from 14.4% previously, before moderating to 6.2% in 2025.

It has maintained its end-2024 FBM KLCI target of 1,605 points based on an unchanged 15x 2024 PER, which was in line with its historical PER range of 14x-16x post the economy reopening in 2021-2022. The KLCI was trading at 1,545 points at 11.35am today.

“With central banks in advanced economies poised to cut rates this year—from Jun 2024 for the Fed based on the latest Fed Funds futures—EM assets will become attractive again given a lower risk-free return of DM assets. Policy easing in advanced economies will also set in motion a more synchronized global economic recovery, fuelling an export boom in the largely still export-dependent EM economies.

“We expect the local market to lift off in a way likened to a rocket propelled by three booster engines in succession. We will tactically first position ourselves in beneficiaries of public spending, gradually also gravitating towards the tech and EMS sectors. We expect consumer spending to get softer before it gets stronger as it takes time for consumers to “internalise” subsidy rationalization,” it said.

It said three FBM KLCI component stocks under its coverage beat its projections, namely Axiata Group Bhd (strong showing from Indonesian units), CelcomDigi Bhd (write-back of provisions) and Telekom Malaysia Bhd or TM (tax credits).

On the other hand, it said seven FBM KLCI component stocks under its coverage universe that missed its projections were AMMB Holdings Bhd (overlays on repayment assistance book), IHH Healthcare Bhd (weak showing from operations in Singapore and Türkiye), IOI Corp Bhd, Kuala Lumpur Kepong Bhd (KLK) and Sime Darby Plantation Bhd (weak downstream performance), Maxis Bhd (accelerated depreciation) and Tenaga Nasional Bhd (high fuel cost). – TMR