Overall, the Aug results season was a major letdown. The number of
underperformers overwhelmed outperformers by more than a factor of 3. Since
the May results season, 2008 EPS growth has been chopped from 15% to 9%.
2009 EPS growth is unchanged at around 7% but bear in mind the lower base in
2008. There is further downside risk to our earnings forecasts as the 3Q
results in Nov will incorporate a full three months of the higher petrol
prices and the 18-26% electricity tariff hike as well as two rounds of price
increases for building materials. As the fundamental outlook continues to
deteriorate and the political uncertainty shows no sign of ebbing, we are
cutting our KLCI targets from 1,290 to 1,140 points for end-08 and from
1,400 to 1,240 points for end-09. Our target basis has been lowered from
13.2x to 12.2x P/E as we widen the discount to the 3-year moving average P/E
from 10% to 15%. We remain cautious about the outlook and maintain our
NEUTRAL weighting on Malaysia. -CIMB
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