Midway past the 4Q 2016 reporting season (63% of our stock universal having reported), corporate earnings have thus far come in fairly decent – with 20% beating and 58% meeting our projections respectively, while 22% coming in below. This is a marked improvement as compared with 14%, 51% and 35% for "above", "within" and "below" in 3Q 2016. Similarly, as against the market consensus, thus far, the numbers have been encourag

Midway past the 4Q 2016 reporting season (63% of our stock universal having reported), corporate earnings have thus far come in fairly decent – with 20% beating and 58% meeting our projections respectively, while 22% coming in below. This is a marked improvement as compared with 14%, 51% and 35% for "above", "within" and "below" in 3Q 2016. Similarly, as against the market consensus, thus far, the numbers have been encouraging with "above", "within" and "below" at 27%, 55% and 18% respectively, as compared with 13%, 35% and 52% in 3Q 2016. Thus far, the plantation sector has been the star performer, with major players (KLK, IOI Corp, Genting Plantations and IJM Plantations) beating forecasts thanks largely to the higher-than-expected CPO and PKO prices realised. Banks have generally delivered their numbers. While there has been an uptick in provisioning during the Oct-Dec 2016 quarter, the quantum of the provisioning has been within our expectations. However, the showing from telcos has been mixed. Maxis' numbers came in stronger thanks to lower year-end marketing costs while Axiata was weighed down by accelerated depreciation and lumpy M&A related costs.

Meanwhile, as per 3Q 2016, most consumer stocks have thus far been disappointing. While the decline in sales volumes have generally stabilised, margin pressure has remained as they no longer enjoyed abnormally low input costs as in the previous years. After factoring the earnings changes thus far, our FBM KLCI earnings growth forecasts for 2016F and 2017F have been tweaked to -0.6% and +7.2% from -1.6% and +7.6% previously. In terms of earnings growth forecasts of "all sectors", the numbers for 2016F and 2017F have been tweaked to +3.8% and +13.9%, from +2.2% and +11.1% previously. We maintain our end-2017 KLCI target of 1,745pts which is based on 17.5x 2017 earnings, at a 1x multiple premium to its 5-year historical average of about 16.5x. We believe the premium could be justified by: (1) a cyclical upturn in corporate earnings as reflected in our projected +7.2% growth in FBM KLCI earnings, which are in turn underpinned by a stronger projected GDP growth of +4.5% in 2017 versus +4.2% in 2016; (2) asset allocation in favour of equities over bonds in a rising interest rate environment; (3) the still favourable underlying emerging market outlook (healthy growth and favourable yields); and (4) firming commodity prices.