3 weeks ago
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PETALING JAYA: The recently concluded third-quarter corporate earnings period has provided some hope for the upcoming quarters, analysts said, despite 2020 being a write-off year.
PublicInvest Research said whether it was a situation in which the investment community had become overly pessimistic on prospects and made drastic cuts to expectations, the current period saw a good number of upside revisions, be it on earnings estimates, recommendations and/or valuations.
It said for the stocks under its coverage, earnings hits and misses were noticeably better 67:33% vis-à-vis the 61:39% at the end of the second quarter, offering some optimism of strength into the future, particularly with the expected economic recovery going into 2021.
“While markets have been moving upward in recent months, predominantly on heightened levels of expectations, earnings recoveries on the back of business-related improvements are picking up.
“While current upward adjustments are not to the cyclically-critical sectors like banks, properties and construction as yet, we expect to see improvements in the coming year due to pick-up in activity, underpinned by the global and our economic rebound,” it added.
The research house is keeping its year-end target for the FBM KLCI unchanged at 1,590 points, and suggested that the benchmark could head toward the 1,720-point mark in the coming year.
“Beyond 2021, preliminary indications suggest a roughly 5% earnings growth, likely sufficient to keep investors engaged in the market. Interest rates at all-time lows, conditions we last saw in 2008/2009, is feeding the hunger for investment returns hence the market is not reacting particularly negatively to weaker earnings reports seen in the last two quarters,” it said.
For stocks, PublicInvest said it is retaining its preference for smaller-capitalised names with strong growth stories. Johore Tin, Magni-Tech Industries, Mega First, Sarawak Plantations, Serba Dinamik, SKP Resources, Homeritz Corporation and D&O Green Technologies.
CGS CIMB Research said that while quarterly market earnings for companies under its coverage grew year on year for the first time in eight quarters, it foresees corporate earnings to be mixed quarter on quarter in the final quarter, as sequential earnings recovery would be negatively impacted by the reinstatement of the Conditional MCO from mid-October to early December in major cities in the country.
The research house is raising its year-end KLCI target to 1,628 points from 1,520 points and introduced its end-2021 KLCI target of 1,732 points.
“For our top three picks, we replace Tenaga and MPI with Telekom and Inari, while retaining Public Bank. This is in line with our stance that investors should positioned into companies that will benefit from the recovering economy as the impact of the Covid-19 outbreak eases,” it said.
Its top picks now include Inari, Telekom, Malaysia Airport, Hong Leong Bank, DRB-HICOM, AXIS REIT, Hap Seng Plantations, SKP Resources, LSK, Media Prima, and 7-Eleven.
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