Strong profit growth seen for FBM KLCI component firms

PETALING JAYA: The FTSE Bursa Malaysia KL Composite Index (FBM KLCI) component-stock companies are expected to see robust earnings growth in the first half of 2014, said MIDF Research.

Basing its argument on the performance of the FBM KLCI over the past 26 weeks, MIDF Research said: “We can expect its trailing earnings to experience a robust upward trajectory in the first quarter of this year.”

“Subsequently, its trailing earnings trajectory may continue on at a similar upbeat pace up to the quarter ending June 2014,” the research house wrote in its strategy report.

MIDF Research said it believed the market had already priced in the robust upward earnings trajectory in the first six months of the year.

“In tandem with the steady year-on-year (y-o-y) growth performance of the FBM KLCI during the past 26 weeks, we can expect its trailing earnings growth during the first and second quarters of 2014 to regain positive territory and trend higher towards the low double-digit levels,” MIDF Research explained.

“The anticipated on-year earnings growth path is in congruence with our circa 10% earnings growth expectation for FBM KLCI in 2014.”

According to MIDF Research, the aggregate profit for the FBM KLCI stocks for the quarter ended December 2013 is expected to register sequential growth.

But the on-year growth number could actually see a decline.

It expects the aggregate performance of the index component-stock companies to register an increase of 11% quarter-on-quarter to RM14.66bil, led by better performance of plantation companies and higher earnings of Tenaga Nasional Bhd.

On an annual basis, however, earnings are expected to decline 10.8% y-o-y due to the high base effect of Genting Bhd’s RM1.9bil extraordinary profit from the disposal of its Kuala Langat power plant, which was realised in the fourth quarter of 2012.

“We reaffirm our FBM KLCI baseline 2014 year-end target of 1,900 points, with the upper and lower bounds at 1,980 and 1,840 points, respectively,” MIDF Research said.

However, it stressed that failure of earnings to keep pace with market expectations may eventually result in price correction, pointing to the index trend between the fourth quarter of 2010 and second quarter of 2011 as indicators.