Results for 2Q13 shows weak quarter for domestic players

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KUCHING: The barrage of results for the second quarter financial year 2013 (2QFY13) indicates that the period was another unexciting one, with the coming quarter to be seasonally weak as well, as the market stays in anticipation.

RHB Research Institute Sdn Bhd (RHB Research) noted that a total of 51 per cent of the 155 stocks under its coverage reported earnings that were in line with expectations.

“Sectors that contained more earnings disappointments than positive surprises include auto, plantations, timber, education, building materials, healthcare, oil & gas and logistics and ports,” the firm noted, adding sectors that did better-than-expected include non-bank financials, property, REITs, shipping and utilities.

“We continue to expect a pick-up in corporate earrings going forward, with earnings per share growth forecast at 3.1 per cent and 11.0 per cent for 2013 and 2014 respectively, in line with the upward trajectory in gross domestic product growth.”

However, RHB Research noted that the recent downgrades of the banking and property sectors were made on valuation grounds, while the lower liquidity, higher interest rate outlook and heightened regulatory risks are dampeners for the real estate sector.

“The construction sector is also at a crossroads with constrictions in Government finances potentially putting certain public infrastructure projects at risk of being rescheduled.”

Meanwhile, head of research from Kenanga Investment Bank Bhd (Kenanga Research), Chan Kan Yew in a separate note said despite the unexciting results, due to the recent sharp corrections, the FBM KLCI was now being traded at a seven per cent- discount to the consensus Index Target.

“Note that the discount narrowed to 2 per cent, which is in the ‘sell on strength’ (SOS) area, when FBM KLCI was traded at 1,810.

“The discount also widened to as much as 10 per cent, a ‘buy on weakness’ (BOW.) area, when FBMKLCI traded at recent intraday low of approximately 1,660,” Chan said.

“Recall that based on the consensus index target and the FBMKLCI index movement, we notice that FBMKLCI normally trades at between 2.9 per cent and 9.1 per cent – or six per cent on average – to its consensus target level “As such, we reckon that a BOW strategy is always preferred when the discount widens to more than six per cent.”

While Chan noticed that foreign investors have been net equity sellers since early-July 13 until end-August 13, he was not overly concerned, as local liquidity remained supportive.

Meanwhile, RHB Research expected the market to stay volatile with downside bias.

“We think market risks in the near term remain weighted on the downside.

“Geo-political developments continue to dominate news flow with Middle-East turmoil being an unpredictable powder keg,” it stated.

“The market will continue to look for further indications of the Fed’s qualitative easing tapering plans at the next Federal Open Market Committee meeting in two weeks’ time.”

The research house said domestic markets remained susceptible to portfolio flow reversals, given the high level of foreign ownership in both the debt and equity markets.

“Along with the Philippines, Malaysia is one of only two markets in Asean to register positive year to date gains despite the 4.5 per cent pullback since the FBM KLCI peaked at 1,810 points on July 24.”