More underachievers than overachievers in 1Q17, says CIMB Research

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KUALA LUMPUR (June 2): CIMB IB Research has maintained its end-2017 KLCI target at 1,790 and said there were more underachievers than overachievers in 1Q17.

In a strategy note June 1, the research house said the earnings revision ratio deteriorated from 0.58x in 4Q16 to 0.34x in 1Q17, the fifth-lowest ratio since 1Q08.

CIMB Research said this was in line with its view that the strong 4Q revision ratio may not be sustainable.

It said the good news was that 1Q17 net profit grew 12% year-on-year, the highest rate since 1Q13.

“We project EPS growth of 8.2% for 2017 and 7.8% for 2018.

“We maintain our end-2017 KLCI target at 1,790. Our top three picks are Gamuda Bhd, Sime Darby Bhd and Tenaga Nasional Bhd.

“Among the 118 companies that we actively cover, 11% reported results that were above expectations in 1Q17 vs. 21% in 4Q16. The number of companies with results that were below our expectations fell from 36% in 4Q16 to 32% in 1Q17,” it said.

Commenting on the stocks, it said Gamuda is the frontrunner in the rail tunnelling tenders totalling RM41 billion across all projects.

“In the short term, resolution to the sale of its 40%- owned Splash is the key event catalyst that may lead to special dividends,” it said.

On Sime Darby, the research house said it expect Sime’s share price to improve on the back of higher commodity prices and plans to demerge and list its plantation and property divisions.

Finally, it said Tenaga’s P/E is one the lowest among the FBM KLCI constituents, while its earnings growth potential is one of the strongest because of its policy of reinvesting 50-70% of its earnings.

“Earnings contributions from new assets are the key potential rerating catalysts for its share price,” it said.