Covid-19 blues hit Corporate Malaysia’s 1Q
KUCHING: It comes as no surprise that the current reporting cycle is unsurprisingly poor given the ravages of the Covid-19 pandemic and its negative effects on global economic conditions.
What is of worry is that we have yet to see the worst of its impact on corporate earnings, though sufficiently prudent cuts to expectations have already been undertaken, said Public Investment Bank Bhd (PublicInvest Research) yesterday.
“Earnings surprises were noticeably lacking, with the only standout sector being gloves which met expectations by posting supernormal profits,” it said in a review of Corporate Malaysia’s first quarter (1Q) earnings.
“Disappointments were aplenty, principally in cyclicals like banks, property and construction. Earnings cuts were more or less in line with the number of disappointments.
“A number of downward revisions were to account for the lack of business activity during the Movement Control Order period (and its many extensions), though many are also to account for weaker business prospects.
“We continue to caution for further downside to earnings expectations, depending on the degree to which the pandemic is contained globally.”
PublicInvest Research saw that Malaysia’s investment proposition for 2020 was to have been better than what it was in 2019.
“We appeared to have clear growth initiatives, as unveiled in Budget 2020 with its positive overtones,” it continued. “The government had stepped up, with consumers seemingly lacking confidence to spend and businesses appearing reluctant to invest.
“But that is now a distant memory in the face of the Covid19 pandemic, and a new sitting government.”
Within the first four months of the year, advanced economies such as the US, eurozone and Japan have announced contractions in economic growth, with 2Q likely to be even worse.
In that time, the earnings picture has turned 1,800 from a 4.2 per cent year on year (y-o-y) growth expectation for 2020 to a 13.3 per cent y-o-y contraction.
PublicInvest Research saw that the market appears to be underpinned by expectations of a V-shaped recovery at this juncture. Add to that the flush liquidity amid interest rates which have been cut to all-time lows, conditions we last saw in 2008/2009, hunger for returns are being fed.
“Whatever the prognosis on Covid-19 is, or whenever the vaccine is found, we believe this current challenge will be overcome, timing notwithstanding. The market has been and will continue to be a trading-oriented one until the dust fully settles.
Earnings surprises were noticeably lacking, with the only standout sector being gloves which met expectations by posting supernormal profits. PublicInvest Research
“The specter of a second or third wave of infections loom large, to which governments and central banks may find it harder-pressed to defend against given the vast array of measures already dispensed though herculean efforts will no doubt be undertaken.
“Wild ups and downs are to be expected, which will present selective opportunities.”