UNCERTAINTY OUTLOOK: ECM Libra says the risk of a further disappointing earnings seasons cannot be ruled out as the estimates for CY12 and beyond have largely been kept intact so far.

KUALA LUMPUR: ECM Libra Capital Sdn Bhd (ECM Libra) yesterday downgraded its FBM KLCI year-end target to 1,450 from 1,650.

The second quarter earnings season, was the second in succession it deemed to have disappointed, as negative earnings surprises exceeded those that were positive.

Although the fundamentals of Malaysian equities remained intact amid uncertainties on the external front, the earnings growth momentum story was obviously coming to an end, it said in a research note.

ECM Libra said the risk of a further disappointing earnings seasons could not be ruled out as the estimates for CY12 and beyond had largely been kept intact so far.

The research house said that earnings growth momentum was also waning as it cut CY11 and CY12 aggregate earnings of stocks within coverage by 2.3 per cent and 2.1 per cent, respectively.

“As such, we are downgrading our end-2011 FBM KLCI target from 1,650 to 1,450 by pegging a lower 13x P/E to reflect higher risk aversion and risk of further earnings downgrades,” it said.

ECM Libra said the proportion of corporate results coming in at below expectations at 16 per cent, exceeded those above expectations at 14 per cent.

“When compared against consensus estimates, these corporate results also failed to meet street expectations, coming in below expectations at 33 per cent and exceeding those above expectations at 14 per cent,” it added.

Meanwhile, HwangDBS Investment Management Bhd (HwangDBS Research) had lowered its year-end KLCI target to 1,520 points from 1,730 points previously, with the earnings cut for its stock universe.

Since August 4, the KLCI had dropped 6.4 per cent and is currently trading at 13.4x 2012 earnings and 2.0x book value.

In view of the slowdown, the research house expected the government to push ahead with infrastructure project awards and as such, it remained keen on the construction sector.