KUALA LUMPUR:Maybank Investment Bank Equities Research has reduced its 2009-10 market earnings forecasts by 7.3% and 6.1% and expected corporate earnings to contract by 10.5% in 2009, before recovering to 6.3% growth in 2010. In its strategy report issued on March 3, it said there could be further downgrades to our its forecast, depending on crude palm oil (CPO) price trends, as well as the timing and level of banks’ non-performing loans (NPL) charge-offs. The research house said the steep earnings cuts reflected nasty surprises especially towards the season’s last reporting week, with key disappointments emanating from the steel, technology and plantation sectors, as well various large capitalised stocks. “Three concerns gained prominence in the 4Q08 results season – deep earnings cut as companies frontloaded provisions, significant rights issues by TMI and Maybank, and rising incidences of dividend cuts,” it said. Maybank Research expected a modest 6.3% recovery in 2010. As for the KL Composite Index, it maintained its end-2009 target of 900. This would imply a target price-to-book (P/B) and price-to-earnings (PE) multiples (based on 2008 and 2010 figures respectively) of 1.3 times and 12.8 times.Commenting on the 4Q results, it said 33% of the 85 stocks within its coverage disappointed in the 4Q08 reporting season, versus 20% which posted positive surprises. It added the auto and construction sectors also disappointed. “In all, 17 companies recognised write-offs totalling some RM5.6 billion (representing 15% to 20% of our previous 2008 core profit base),” it said.It added that operationally, among the large caps which disappointed were TMI (weak international operations), IOI Corp (forex losses), Sime Darby (inventory writedowns), MAS (lower load factor), and MPI (downturn in the semiconductor sector). AirAsia surprised by taking more provisions for fuel hedging and revealed hefty losses on interest rate swaps. Eight companies under its coverage reduced their cash dividends in 2008, while TMI and Maybank announced plans to raise capital via rights issues of RM5.25 billion and about RM6 billion respectively.“Looking forward, we expect more companies (for example plantation companies) to cut dividends, and there could be more cash calls, as the economy deteriorates,” it said. On the 1Q09’s core earnings (excluding inventory and forex losses), the research house said it was likely to fall significantly quarter-on-quarter, as business conditions have probably worsened month-on-month in January and February. Maybank Research gauged that domestic consumption significantly slowed after the Chinese New Year festivities. Also, banking sector loan applications and approvals contracted for the fifth consecutivemonth in January and credit card transactions slowed. “A poorer 1Q09 outlook and heavy cash calls will prompt investors to closely monitor companies’ sales conversion cycles, balance sheets and ‘cash burn rates’.“We maintain our view that corporate Malaysia’s balance sheet will remain healthy, even if GDP contracts in 2009. Banks’ capital base should also stay healthy, even though NPLs are set to spike up at some stage,” it said. The research house said the events to watch out for the next few months would be the second fiscal stimulus package slated to be announced on March 10, the UMNO general assembly, which would be held on March 24-28 and the replacement of the KL Composite Index with the FTSE Bursa Malaysia KLCI slated on July6. Maybank Research said the UMNO election could provide a buffer against the collapsing US equity markets, while the portfolio rebalancing exercises by index funds in the coming months for the new KLCI could favour companies like Resorts and YTL Power. Notwithstanding the UMNO election, it expected the KLCI to trend down through 3Q09, with a higher chance of falling below 800, led by a further meltdown in global demand and amid the ringgit’ weakness.Its top picks were PLUS Expressway, Tanjong Plc, KLCC Property and Guinness Anchor.
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