A greatly disppointing Quarter from Kenanga

3QCY14 Results Review
A Greatly Disappointing Quarter
By Chan Ken Yew / kychan@kenanga.com.my
The FBMKLCI fell ≈50 points to retest its recent low of ≈1,765 yesterday after the just concluded corporate results season. While we have no doubt that this latest string of quarterly results showed great disappointment across the board, we also believe other unfavourable external factors such as:  sharp decline in crude oil prices, (ii) lacklustre CPO prices, and (iii) rapid weakening in Ringgit, were also the complicit culprits.
During the quarter, we saw the highest number of companies so far under our coverage delivering results,which were below expectations, amounting to 40% of the stocks under our coverage universe. Transportation & Logistics, Consumer MLM, Consumer Retail, Oil & Gas, Plantations, Gloves and Aviation saw significant downgrades (>5%) in our current financial year’s earnings estimates.
Consequently, our FY14E-FY15F core net profit growth estimates for FBMKLCI were revised to 1.4%-4.8%(from 4.9%-11.3% previously). In tandem with the weaker results and less bullish earnings growth prospect,our end-2015 Index Target has also been revised lower to 1,950 (from 1,980 previously) while end-2014 Index Target was lowered to 1,870 (from 1,910 previously). At 1,870, the FBMKLCI is expected to trade at 21.1x FY15PER while it is valued at 20.5x FY16 PER should we peg our index target at 1,950.
As market sentiment has turned weaker, we reckon investors should lower their “Buy On Weakness” (B.O.W.)zone to 1,775/60, representing c.8.5% discount to Consensus Index Target of 1,925/40.
Note that this support zone represents -1SD-level below the 5-year average discount of 5.5%. This support zone has proven resilient during the recent market selldown.
While we like construction and building materials as well as export-orientated sectors to leverage on the domestic economic growth, we prefer heavily sold down Oil & Gas stocks to capitalise on the recent sharpbdecline in their stock prices, as we believe certain Oil & Gas stocks still offer good bottom-fishingopportunities as values have started to emerge (even after earnings downgrades). We like (i) DAYANG (OP,TP: RM3.40), (ii) BARAKAH (OP, TP: RM1.62), (iii) PERDANA (OP, TP: RM1.61) and SKPETRO (OP, TP: RM4.24)to a certain extent. On the flip side, AIRASIA (OP, TP: RM2.802) could be a natural hedge against oil priceweakness.

For conservative investors, they may consider resilient sectors such as Telco, Power and Water
Utilities. Our OUTPERFORM calls in these sectors are PESTECH (TP: RM4.36), TENAGA (TP: RM14.65),YTLPOWR (TP: RM1.70) and PUNCAK (TP: RM3.99)