4Q23 Core Earnings Above Board Up 5% YoY Albeit Petrochems And Plantation: Maybank IB

For the 3rd consecutive quarter, 4Q23 core earnings of corporations picked up YoY, posting 5% growth, contributed by almost all sectors – except Petrochems, Plantation and Healthcare. QoQ however, core profits were down 7.2%.

Maybank Investment Bank (Maybank IB) said this brought the core earnings growth for entities under their coverage to 3.8% YoY for 12M23 with two large sectors dragging down total earnings: Petrochems and Plantation.

In a note today (Mar 6) Maybank IB said excluding these two sectors, core earnings rose 17.7% YoY.

Misses = beats, ratio trending down

Positively, the ratio of earnings misses-to-beats (vis-à-vis Maybank IB’s forecasts) continued to trend down – to 1.0x, from 1.3x in 3Q23, 2.2x in 2Q23, and 3.7x in 1Q23.

Banks and Construction earnings surprised positively while Plantation generally disappointed. Among the big-caps, positive outliers were Axiata, SP Setia and IJM.

Prominent negative surprises came from Maxis, Petronas Chem, Tenaga, Malakoff, Capital A and AirAsia X.

+13.1% growth in 2024E, +9.9% in 2025E

Maybank IB’s coverage core earnings estimates are now lower by 3.5% for 2024E, and 2.0% for 2025E compared to Dec 2023’s level.

Maybank IB now forecasts +13.1% core earnings growth for their entites in 2024E, +11.4% for KLCI (previously +15.6% and +11.2% each), while for 2025E, they estimate a +9.9% growth for their universe and +8.2% for KLCI.

Maybank IB expects Banks earnings growth to slow in 2024E (+5% YoY); Petrochems, Plantation, Materials and Utilities earnings to rebound; Gloves and Aviation to return to the black.

Maintaining 1,610 YE KLCI target

Based on Maybank IB revised earnings estimates, KLCI’s valuation (at 1,551 pts on 29 Feb) was at 14.6x 12M fwd. PER, -0.8SD its LT mean. They maintain their YE KLCI target of 1,610 which implies 14.2x 12M fwd. PER, expecting the execution of macro blueprints and strong corporate earnings delivery to further lift KLCI’s levels (+6.7% YTD).

A re-rating is possible as economic and institutional reforms are executed to facilitate new growth drivers, leading to improved risk-reward.

Rejigging some sector weights & top BUYs

Bottom-up, Maybank IB’s Consumer sector is now Overweight, while Aviation and Gloves are NT. They remain OW on Banks, Construction, Gaming, O&G, RE and Tech (Software); UW Petrochems and Media.

For Maybank IB’s top BUY list included Frontken, Hartalega, MrDIY, AEON Co., Leong Hup Int’l and CMS, (but removed) namely, Gamuda, Farm Fresh, Optimax, Wasco, Sime Property, ITMAX, M’sia Airports and Kossan, based on updated upside potential.

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