05 June 2012

OSK Research: 1Q2012 Report Card and Strategy (June 2012)

In the recently concluded 1Q2012 reporting season, a similar number of companies under our coverage underperformed, at 31% versus 32% in 4Q2011 and 34% in 3Q2011. The percentage of companies that outperformed fell to 14%  from 17% in the previous quarter (see Fig 1) and 15% in 3Q2011. Surprisingly, there were more earnings letdowns among the big caps, with 27% missing estimates versus 17% in the preceding quarter while among the small caps, more companies trumped estimates - at 20% - compared with 12% in 4Q2011. The notable positive surprises among the big caps were Maybank and JCY while the negatives were from MAS, the Genting Group and MISC.




Steel, plantations and oil & gas disappointed.
The steel, plantations and oil & gas sectors were  dogged  by industry-specific issues and the macro-economic environment. Most steel companies that we cover continued to be mired in losses due to weaker selling prices and high material costs while plantation companies suffered production setbacks and higher input cost. Oil & gas companies were drenched by the monsoon season and the dearth of new contracts, which are only expected to pick up in 2H2012. The Genting group of companies saw earnings skimmed by the poor showing from the domestic and Singapore gaming units as well as its plantation outfit.





But consumer, financials/insurers gave reason to cheer.
As expected, the sectors in better shape were those with relatively more stable and defensive earnings and which had benefited from the Chinese New Year demand. Here, the breweries and retailers stood out. There was also the positive fillip for financial related insurance companies due to the adoption of the Malaysian Financial Reporting Standard (MFRS1) during the quarter.    



Given the potential bugbears in the form of:
  1. the upcoming make-or-break elections for Greece slated for 17 June,
  2. possibility of a Spain bailout,
  3. FOMC’s meeting on 19-20 June, and
  4. the technical violation of the US markets last Friday,
there are enough reasons for investors to stay defensive while positioning for rebound trades in the event of a sharp pullback. The upcoming listing of 2 major IPOs (Gas Malaysia and Felda Global Ventures) should provide near-term catalysts and support for the FBM KLCI. We like the banking, consumer, construction and oil & gas sectors.

In short, market is turning more cautious, so do investors...


Source: OSK Research

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