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 The just-concluded 4QCY19 result season were a mixed performance. Of the 141 stocks in our research universe, 65 (46%) came in within, 29 (21%) above and 47 (33%) below our expectations. Of the 30 FBKLCI component stocks, 18 were within, 3 above and 9 were below. FBMKLCI CY19 EPS came in at 95.2 sen by our estimates, as expected. Those that disappointed were the Gaming and O&G sectors.

GENM (MP; TP: RM2.95) and GENT (OP; TP: RM6.65) came below on low hold percentage and losses at the recently ill-invested Empire, while Petronas-owned counters disappointed. In the plantation sector,

KLK (OP: TP: RM28.80) missed because of lower-than-expected output and higher-than-expected unit production cost. Rounding off the season at a time during which COVID-19 and domestic political upheavals are unsettling the market, EPS expectation for FY20 had to be downgraded by 6% from 102.4 previously to 96.5 sen. This cuts the previous FY20 EPS growth expectation from 7.5% to 1.4%. Sectors which saw biggest EPS downgrades for FY20 were tourism related – GENT, GENM and MAHB (OP; TP: RM7.20) were cut 27%, 29% and 28%, respectively. On the other hand, PGAS (MP; TP: RM17.20)

was raised 16% because of a generous new base tariff rate. Post-results, we introduce our FY21 EPS estimate of 101.5 sen and cut our year-end target for the FBMKLCI from 1,712 to 1,563. These revisions represent EPS growth of 1.4% for FY20 and 5.2% for FY21. Applying 15.4x multiple (1SD below 5-year mean) on rolling forward 12-month EPS, the current `fair value’ FBMKLCI level is 1,499 while the yearend target is 1,563. OW Banks, Plantation, Property, Technology and Rubber Glove sectors. UW Building Materials and Healthcare. Maintain OUTPERFORM calls on our 1QCY20 Top Picks : AIRPORT, BAUTO, CIMB, GAMUDA, GENP, KLK, MAYBANK, MPI, PADINI and PESTECH Reduced year-end KLCI target to 1,563 points: Post review, we cut our FBMKLCI EPS estimate for FY20 from 102.4 sen to 96.5 sen and introduce FY21E EPS of 101.5 sen. And, applying a 12-month forward PE of 15.4x (1- standard deviation below the 5-year mean) to 2021 EPS gives a year-end target of 1,563. At the core net profit level, CNP and EPS growth for FY20E was adjusted from +7.5% to 1.4%, while FY21E EPS represents growth of 5.2%, thanks partly to FY20’s low-base effect. Currently, consensus EPS projections are 97.5 sen and 103.9 sen for CY20 and CY21, respectively.

COVID-19 disruption led us to cut EPS for FY20: The most severe cuts affected the tourism/leisure, airlines, consumer and retail sectors. As a result of COVID-19 and post 4QFY19 results adjustments, the gaming sector (GENM and GENT being the two components) FY20E growth was cut from +6.5% previously to -22%. Given that both make up c.7% of the index in earnings terms, the 30% swing effectively takes 2% off KLCI’s EPS growth. For AIRASIA (UP; TP: RM1.00) EPS was reduced from 16.7 sen to a loss of -7.7 sen.

Trendwise remains fairly encouraging: Of the 141 stocks in our research universe, 65 (46%) came in within, 29 (21) above and 47 (33%) below our expectation. The number of stocks that exceeded our expectation increased from 25 previously (post 3QFY19 results) to 29 – it was 12 post 2QFY19. However, the numbers that disappointed also increased, from 42 to 47 – it was 50 post 2QFY19. In terms of performance relative to market expectations, those that exceeded exectations remained at 21 (it was 7 in 2Q19), while disappointments fell from 48 to 43 (it was 52 in 2Q19) (see tables in Appendix 1).

Three sectors’ results came in below, one above: The three sectors that disappointed were firstly gaming (GENM, GENT, MAGNUM were below, BTOTO within), secondly, transport/logistics (AAGB (UP; TP: RM1.00), AIRPORT (OP; TP: RM7.20) and POSM (OP; TP: RM1.95) were below while MMC (MP: TP: RM1.95) and WPRTS (MP: TP: RM4.05) were within) and finally, sin sector where CARLSBG (UP; TP: RM29.00) and HEIM (MP; TP: RM28.90) came in short while BAT (OP: TP: RM16.70) exceeded expectation. The sector that came above was plantation where 7 out of 13 exceeded, 5 were below and 1 within.Dividends surprised pleasantly – especially Petronas counters: Except for PCHEM (OP; TP: RM6.35), Petronas counters PGAS (MP; TP: RM17.20), MISC (OP; TP: RM8.70) and PETD (MP; TP: RM21.35) (despite lower profit for the latter) all announced special dividends that were above our expectations. Even WASEONG (MP; TP: RM1.40) is paying dividends for the first time in 5 years. These high pay-outs may reflect the slow investment climate and low rates. TNB (OP; TP: RM14.20) too paid a special dividend effectively doubling the total payout to RM1.00 versus a year ago.

Banking sector FY20E EPS growth downgraded but maintain OW call: The banking sector results were within expectations with 8 in line, 1 below - ABMB (OP; TP: RM2.90) and 1 above - MBSB (OP; TP: RM1.10). We reduced FY20E growth for the Banking sector from 3.1% to 0.4% as NIMs will likely remain under pressure on the likely chance of another OPR cut as early as this month given the overwhelming concerns of political uncertainties and COVID-19 disrupting the economy, in addition to increased risk of higher credit charge. Despite all this, we maintain the OW sector call as the sharp retracement in share prices makes PBV valuations and dividend yields compelling.

For Rubber Gloves, the OW call remains for its exposure to COVID-19 driven demand which it is well positioned to tap into given the capacity expansions that are in the pipeline. This sector’s results were mixed, with KRI (OP; TP: RM5.90) and SUCB (OP; TP: RM2.00) coming in line while HART (OP; TP: RM7.00) disappointed slightly. TOPG (MP; TP RM5.30), which earlier reported for the Nov quarter, came in slightly ahead of expectation. What is common for all 4 is that the increase in sales volumes mitigated ASP declines to deliver positive revenue growth on both QoQ and YoY basis. The sector exhibited marked improvement in sequential earnings growth, while more modest on a YoY basis.

Overweight Plantation, EPS recovery starting to show: Improvement in EPS is starting to show on sequential basis as ASPs have been recovering. However, there were a few misses mainly because of lower output and higher unit production costs than we had expected. And certain planters like KLK (OP; TP: RM28.80) disappointed as they sold forward too early at a lower-than-expected price.

Utilities: PGAS (MP; TO: RM17.20) saw its FY20 EPS expectation maintained. However, it was earlier raised +16% as the base tariff rate set for RP1 to take effect this year turned out to be more positive than expected.

Oil & Gas – disappointment from Petronas counters: This round of results disappointed in that just under half the coverage (7 out of 15) reported results that were below expectations. All the Petronasowned counters ie. PCHEM, PETDAG, MISC and MHB posted disappointing results, with PCHEM and PETDAG posting weaker financial year. Only DAYANG and SERBADK had results that came in convincingly above our and street expectations..

Post results, we maintain OUTPERFORM call on our 1QCY20 Top Picks : AIRPORT, BAUTO, CIMB, GAMUDA, GENP, KLK, MAYBANK, MPI, PADINI and PESTECH

Source: Kenanga Research - 3 Mar 2020

https://klse.i3investor.com/blogs/kenangaresearch/2020-03-03-story-h1484685288-4QCY19_Results_Review_Frosty_Green_Shoots.jsp