FBM KLCI inching upwards, positive boost expected from major sectors

KUCHING: The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) is expected to record a positive sequential growth as high-weighted sectors such as banking, oil & gas (O&G) and plantation are expected to record positive earnings performance.

MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) highlighted this in a recent strategy report, and forecast that the FBM KLCI could record an earnings growth of 3.6 per cent quaretr-on-quarter (q-o-q).

“For the quarter ended December 2016, the aggregate reported earnings of FBM KLCI current constituents is estimated at RM14.81 billion.

“Against the combined RM14.3 billion earnings reported in preceding quarter, it is expected to record a positive sequential growth of 3.6 per cent q-o-q in the fourth quarter of 2016 (4Q16). On the other hand, the on-year reported growth figure is estimated to drop by 2.9 per cent y-o-y,” it projected.

Nevertheless, adjusted for extraordinary and non-recurring items, the on-quarter growth might be slightly higher at 4.3 per cent q-o-q in 4Q16, it added.

“Moreover, the adjusted on-year growth number may post an increase of 1.1 per cent y-o-y, markedly muted compared to the 16.5 per cent y-o-y adjusted growth performance of the prior quarter,” MIDF Research said.

On a sectoral basis, the research team anticipated positive on-year adjusted earnings growth performance for banking, plantation and O&G in 4Q16.

On the other hand, it pointed out that the aggregate adjusted earnings of utility and telecommunication constituents are expected to report sizable decline in their on-year growth.

However, it noted, banking, plantation and utility sectors are expected to register higher sequential growth during the quarter under review. Overall, it reiterated its FBM KLCI year-end 2017 target at 1,830 points.

“We restate our assertion that empirical observations between earnings and price are conclusive with regard to the nature of their secular direct relationship.

“This is despite the ever present ‘noises’ from short-term price volatility which is influenced by market sentiment and other situational issues.

“Basing on the expectation of further earnings recovery this year, we reiterate our 2017 FBM KLCI target at 1,830 points. The baseline target equates to price earnings ratio 2017 of 17.1-folds,” it explained.