Asia Pacific Equity Strategy:Reporting Season Scorecard:EPS upgrades for region slow;India’s downgrades are 5.3%

Regional upgrades slow to just 0.5%. With 71% of companies in Asia
Pacific ex-Japan having reported, the upgrade to current year consensus
EPS has slowed to just 0.5% since 30 June. Our prior reports had showed
upgrades of 0.7% (report of 14 August) and 1.5%. While Korea, MSCI Hong
Kong and MSCI China are associated with current year consensus EPS
upgrades of 3.3%, 2.4% and 1.5%, respectively, India is associated with
a large 5.3% downgrade. India’s downgrades getting larger. While
investors have been willing to forgive downgrades to consensus EPS in
India in the past, we highlight that the scale of the downgrades appears
to be getting larger. With 53 companies in India having reported,
current year consensus EPS has been downgraded by 5.3% since 30 June.
Reiterate our Underweight call on India. While India is the only market
in the Expensive 4 to outperform YTD, we reiterate our Underweight call
as implied ROE rises to18.5% versus current ROE of 13.1%. See Figures
2-3.

Answer is MSCI Hong Kong. On 2017E Consensus EPS revisions, wehave been
highlighting that Korea comes in first with upgrades of 44% over16
consecutive months. MSCI Hong Kong comes in second with a 4.2%upgrade to
2017E consensus EPS over seven consecutive months. Theupgrades are
broad-based with all seven sectors associated with upgradesin July (see
Figure 4).

Earnings Wrap: Three takeaways from this reporting round

    Only three EPS upgrade cycles. Figure 1 also highlights that
EPSupgrade cycles are indeed rare for MSCI Hong Kong (as it is for MSCI
Asiaex-Japan). So far, there have only been three upgrade cycles lasting
sixmonths or more since 2001–05, 2010 and 2017E. Figure 2 highlights
thatMSCI Hong Kong has risen by 21% during this EPS upgrade cycle.
Figure3 highlights that current P/B of 1.37x is still lower than the
highs of 1.65x-1.7x seen during the 2005 and 2010 EPS upgrade cycles.

    Positive earnings momentum continues in Asia ex Japan (MSCI) with
CQ2-2017earnings coming ahead of expectations. This season (since end of
June2017) so far has seen ASXJ earnings expectations upgraded by 1.8%
and 2.3%for 2017and 2018respectively. Top-line growth and margins were
slightly aheadof estimates; ROEs saw modest uptick.

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