he third-quarter financial results have mostly been disappointing, prompting most equity research houses to cut their 2012 and 2013 earnings targets.
Analysts pointed out that only the banking and finance, property and utilities sectors posted better-than-expected results.
Maybank Investment Bank Bhd research head Wong Chew Hann said this was the poorest performance since the third quarter of 2008. There were more misses in the third- quarter results season with 42% of the companies under Maybank Investment's stock universe reporting earnings shortfalls versus 9% which beat forecasts.
“The overall market earnings per share (EPS) growth estimate for 2012 has been progressively lowered from 15% at the beginning of 2012 to only 6%. It would appear that corporate earnings are not moving in sync with the steady gross domestic product (GDP) growth. For 2013, EPS growth is forecast at a subdued 9%,” said CIMB Investment Bank Bhd research head Terence Wong.
Of the 97 companies that CIMB Investment currently tracks, 25% fell short of expectations, the same percentage as those that had failed to deliver in August.
The percentage of companies that beat expectations edged lower from 13% to 12%. The proportion of those that were in line with expectations edged up from 62% to 63%.
Terence said the number of sectors that missed the mark increased from 11 to 12, for example aviation, chemicals, commodity, conglomerates, consumer, industrial goods, media, oil equipment, shipping, telecoms and transport infrastructure.
He has cut the earnings per share (EPS) estimates by 2.3% for 2012 and 5.3% for 2013. Meanwhile, Maybank Investment has shaved its 2012 and 2013 FBM KLCI earnings forecasts by 1% and 2.6% respectively.
“Plantations disappointed for the third consecutive quarter due to lower crude palm oil average selling prices and higher production costs at some companies. Petrochemicals also disappointed, as did a number of big caps in the telecoms, casino and transport sectors. Banks, however, provided some consolation as their results positively surprised for the second straight quarter,” Chew Hann said.
Overall, the third quarter core net profit of Maybank Investment's stock universe expanded only 2% on a quarterly basis and 6% on a yearly basis. However, the pace of growth trailed expectations.
“On a positive note, core net profit of the key banking sector climbed a healthy 5% quarterly and 17% on a yearly basis. Other sectors like gloves, auto and power reported strong double-digit quarterly and yearly growth,” Chew Hann said.
Terence maintains a “neutral” on Malaysia in view of the continuous earnings letdowns, with the 13th general election constituting the other key overhang in 2013. He has lowered end-2013 FBM KLCI target from 1,730 to 1,670.
“We continue to hold the view that the most likely timing for the general election will be just after Chinese New Year or in February or March, but the odds are increasing that elections may stretch to the last mile in the second quarter of 2013,” said Terence.
Chew Hann is maintaining her 2012 year-end FBM KLCI target at 1,620 and introducing her 2013 year-end target of 1,710.
“This reflects a still-cautious outlook on the external front, compounded by investor jitters ahead of the general election, which looks likely to be held in the first quarter of 2013,” she said.
Chew Hann added that equity markets were likely to stay volatile in 2013 as investors weighed the impact of rising excess liquidity against a still-weak economy.
“Ahead of the general election, investors will price in political risks. As such, we reiterate our view that the FBM KLCI will weaken further in the first quarter of 2013,” she said.