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Analysis: The good, the bad and the ugly
4Q11 results: Operating deceleration; Bottom line acceleration With the exception of ELTY, 71 companies out of 72 in our coverage (80 percent of JCI’s market cap) have reported 4Q11 results
Change Size
4Q11 results: Operating deceleration; Bottom line acceleration With the exception of ELTY, 71 companies out of 72 in our coverage (80 percent of JCI’s market cap) have reported 4Q11 results. For the market, 4Q11 operating profit growth rose 17.0 percent y-y, slower 3Q11’s growth of 24.3 percent y-y (exhibit 1). However, net profit growth slightly accelerated, propelled by the coal sector, in particular ITMG, which booked a derivative gain in 4Q11, allowing for 945 percent y-y net profit growth. Overall, 4Q11 results came in below our as well as consensus expectations.
The Good: Coal, Property, Banks
Three sectors: Coal, Property and Banks (exhibit 2) managed to book both operating and net profit performances which were better than the overall market result. The coal sector benefited from higher y-y pricing and volumes on more favorable weather condition and rising demand from China as well as India. On the property front, companies managed to book solid operating and net profit growth in 4Q11 due to high marketing sales in 2010-11, manageable opex and interest incomes. On the banks, while there were pressures on NIMS, some counters benefited from lower provisioning and tax savings, which helped to boost bottom line growth.
The Bad: Infrastructure
Under this category, only one sector (i.e. infrastructure-related) registered mixed performance with operating profit growth higher than the market, but lower net profit growth. Strong operating profit growth stemmed from seasonality factor in 4Q11, allowing for robust top line growth on relatively manageable opex. On the bottom line, earnings were dragged down by higher net interest expense (i.e. ADHI and PTPP).
The Ugly: A record-setting 8 sectors in this category
In this category, there were 8 sectors, the highest ever thus far, that displayed lower y-y growth in 4Q11 than the market at the operating and net profit levels. However, we would like to point out that Consumer, Auto, Cement and Telcos actually still booked positive operating profit growth while the remaining sectors registered earnings contractions. On oil and gas, PGAS continued to see supply constraint while plantation and metal sectors faced lower margins as their average selling prices were rising in 4Q10, but falling in 4Q11 on global economic slowdown.
Low inflationary outlook = Banks, Property & Consumer to perform
With benign March inflation and the government’s decision to delay administered price increases, we reinstate our interest-rate sensitive top picks: ASII, BBNI, BMRI (exhibit 5). On the property front, we continue to like ASRI, CTRA and KIJA (industrial estate), which has reported excellent 4Q11 results. On construction, we continue to like WIKA. Finally, we expect mass market consumer companies like GGRM, ICBP and RALS to benefit from improved purchasing power on contained inflation.
The write is senior vice president/head of research at PT Bahana Securities.
