KUCHING: The current year consensus earnings estimate of FBM KLCI has seen persistent down revisions pursuant to the past three reporting seasons.
MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) noted that it was rather perplexing as the earnings underperformance coincided with the better than expected macroeconomic numbers which led to the upward revision in Malaysia’s 2014 GDP target.
The apparent disconnect may be attributable to the externally-driven macro performance vis-a-vis the mainly domestic earnings dependency among the major listed companies. Consequently, the 2014 earnings per share (EPS) estimate has declined from 113.41 in early January to 109.81 in mid-September.
The research house added that the spate of downward earnings revisions is not a healthy situation particularly in light of the prevailing above mean valuation. The market valuation which currently stands at slightly above one standard deviation (SD) is certainly not tenable over an extended period. Hence the research house foresee it to ease toward between 0.50SD to 0.75SD within the next 12-15 months.
The consensus earnings estimate for next year was also not spared the recent spate of downward revisions. Consequently, the 2015 EPS estimate has dropped from 124.82 in early January to 120.39 in mid-September.
The implied earnings growth for next year was also lowered albeit slightly from 10.1 per cent to 9.6 per cent respectively. But it is important to note that the high current year market valuation remains supportable by next year earnings despite the recent cut in forward estimate.
“It is noteworthy that the FBM KLCI is currently trading at PER of 15.3x or mere 0.13SD based on next year earnings,” it said.
“As stated earlier, we are expecting the market valuation to ease toward between 0.50SD to 0.75SD in 2015 from the current level of slightly above one SD. Hence at 2015 EPS of 120.39, the FBM KLCI may see an upside at circa 1,970 points in the next 12-15 months.
“The 1,970 points upside may even be surpassed if and when corporate earnings eventually break the recent spate of underperformance and begin to revert higher in line with the improved macro picture.”