Market to focus on upcoming Budget, says HLIB Research

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KUALA LUMPUR (Sept 2): Hong Leong Investment Bank (HLIB) expects the market to walk past weak earnings cycle to focus on upcoming Budget on Oct 21 and potential turnaround in corporate profitability.

In a review of the second quarter earnings, the research house said calendar year 2Q16 reporting season remained a disappointing one and that 42% results fell short of expectations, same as in 1Q16, while higher percentage (17%; CY1Q16: 9%) surprised on the upside.

However, it said the earnings revision ratio improved to 5.1x compared to the calendar year 1Q’16 of 6.5x.

HLIB said the 2016 Earnings per share (EPS) growth was revised slightly lower to -5.7% compared to its previous -5.4%. For 2017 EPS growth was revised to 9.5% from 7.5%

The research house maintained its FBM KLCI end-2016 target at 1,730 based on 15.8x 2017 earnings which is slightly above historical mean.

“Our market strategy remains unchanged. Readiness of Bank Negara Malaysia to support economic growth via easing, improved fiscal position, low foreign shareholding and possibility of snap election could lead to a potential market recharge to higher level despite still lacklustre earnings outlook,” it said.

HLIB’s top picks still remain unchanged: Big Caps: Digi.Com Bhd, Gamuda Bhd, IOI Property Group Bhd, PavREIT & Tenaga Nasional Bhd; Small/Mid-Caps: Matrix Concepts Holdings Bhd, Mitrajaya Holdings, Sunway Construction Group Bhd, Tiong Nam Logistics Holdings Bhd & Unisem (M) Bhd.