Analysts bullish about plantation, banking, construction, property stocks

KUALA LUMPUR: Sectors that will lead the earnings outperformance this year will be plantation, banking, construction and property, said analysts, following a “disappointing” first-quarter 2014 earnings season.

Despite the strong first-quarter gross domestic product growth of 6.2%, the March results season was another disappointment with earnings misses coming from across the board including telecommunications, oil and gas (O&G) and banking sectors, said CIMB Research in a report yesterday.

Due to the earnings disappointments, the research firm has cut its 2014 earnings per share growth to 8.2% from 10.4% three months ago.

“The 2014 EPS growth will be anchored by the plantation and banking sectors, while the chemicals and O&G sectors will provide the upside,” it said.

Of the companies under CIMB Research’s coverage, 19% missed expectations and those that met expectations jumped to 73% from 54%, while companies that beat expectations fell to 8% from 17% previously.

It is maintaining its end-2014 FBM KLCI target of 2,030 points, with preference for the Economic Transformation Programme (ETP) winners remaining, that is the O&G, construction and property sectors.

“We also believe smaller cap stocks will continue to outperform,” it added.

RHB Research Institute Sdn Bhd deemed the March quarter reporting season as “unexciting”, downgrading its earnings estimates to a growth of 3.7% and 8.7% for 2014 and 2015 respectively.

It is reiterating its end-2014 KLCI target of 1,940 points, adding that it continues to like plantation, banking, construction, property and Sarawak Corridor of Renewable Energy plays.

“We expect downside to the market to be limited, given the high liquidity in the market and corrections will likely be shallow. We expect rangebound trading in the near term, with market upside in line with earnings growth,” RHB Research said.

For HLIB Research, first-quarter 2014 reporting season was the 13th consecutive quarter of disappointment and has cut its EPS growth for 2014 to 6.6% from 7.7% previously.

“The number of sectors that disappointed increased to nine (automotive, banks, brewery, conglomerates, construction, gaming, gloves, O&G and transport) from seven,” it said.

“Given the lack of fresh catalyst(s), commencement of the month-long World Cup on June 12 (when the market traditionally drifts lower with subdued activities), heightened geopolitical risks and continued disappointing reporting season, we continue to expect the market to remain lacklustre with some downside risk, albeit limited,” said HLIB Research.

It is maintaining its year-end KLCI target at 1,910 points, or 16 times 2015 earnings, prefering stock-specific bargain hunt on weakness with focus on beneficiaries of the budget, Visit Malaysia Year and reforms, as well as growth and values.

HLIB Research’s top picks are Brahim’s Holdings Bhd, Inari Amertron Bhd, IOI Properties Group Bhd, Malaysia Airports Holdings Bhd, Malayan Banking Bhd, Perdana Petroleum Bhd, Pharmaniaga Bhd, Quill Cap Trust, RHB Capital Bhd, Sapura Kencana Petroleum Bhd, Time Dotcom Bhd and Tenaga Nasional Bhd.


This article first appeared in The Edge Financial Daily, on June 4, 2014.