Mixed bag of re­sults

An­a­lysts say banks meet ex­pec­ta­tions while planters and glove mak­ers dis­ap­point

The Star Malaysia - StarBiz - - Front Page - By TOH KAR INN [email protected]­tar.com.my

PETALING JAYA: The re­cently con­cluded third quar­ter cor­po­rate re­sults for 2019 showed mar­ginal im­prove­ments over the pre­ced­ing quar­ter.

While the bulk of the fi­nan­cial earn­ings have met mar­ket ex­pec­ta­tions, there were more un­der­per­form­ers com­pared with out­per­form­ers.

Ac­cord­ing to Amin­vest­ment Bank Re­search, the FBM KLCI com­po­nent stocks de­liv­ered a dull set of third quar­ter re­sults, with 3%, 69% and 28% re­port­ing re­sults that were “above”, “within” and “be­low” con­sen­sus, as com­pared with 10%, 52% and 38% in the pre­vi­ous quar­ter.

“If there was any bright spot at all, it was that all the FBM KLCI weighted banks ac­tu­ally met ex­pec­ta­tions.

“Mar­gin com­pres­sion re­sulted in earn­ings dis­ap­point­ments from planters, glove pro­duc­ers and alu­minium smelter,” the re­search house said in a strat­egy re­port yes­ter­day.

Sime Darby Plan­ta­tion Bhd and Kuala Lumpur Ke­pong Bhd had ex­pe­ri­enced weak crude palm oil prices but ris­ing pro­duc­tion cost dur­ing the quar­ter, while Top Glove Corp Bhd and Har­talega Hold­ings Bhd en­coun­tered height­ened com­pe­ti­tion on the heels of in­creased ca­pac­ity in the in­dus­try.

On the other hand, Press Metal Alu­minium Hold­ings Bhd saw weak alu­minium sell­ing price but high cost of in­put alu­mina.

Amin­vest­ment Bank Re­search added that Ax­i­ata Group Bhd missed fore­casts due to heav­ier sub­scriber loss and higher oper­a­tion cost, while IHH Health­care Bhd dis­ap­pointed due to higher de­pre­ci­a­tion and fi­nance cost, largely aris­ing from the adop­tion of the MFRS 16.

CGS-CIMB head of re­search Ivy Ng noted that there were no ma­jor sec­tors that sur­passed mar­ket ex­pec­ta­tions dur­ing the quar­ter.

“Gen­er­ally, we see quite a mix of re­sults with most sec­tors un­der­per­form­ing.

“A sec­tor is con­sid­ered to have out­per­formed if more than 50% of the com­pa­nies un­der CGS-CIMB’S cov­er­age beat mar­ket ex­pec­ta­tions.

“Given this strict cri­te­ria, there were no sec­tors that were found to be above ex­pec­ta­tions.

“Many com­pa­nies are still fac­ing chal­leng­ing op­er­at­ing en­vi­ron­ment,” she said.

Ng high­lighted sev­eral sec­tors that came in be­low ex­pec­ta­tions, such as bank­ing, con­struc­tion, au­to­mo­tive and agri-busi­ness.

Al­liance Bank Bhd saw lower loan growth and higher credit cost dur­ing the quar­ter, while Af­fin Bank Bhd re­ported weaker than ex­pected in­ter­est in­come.

As at end-oc­to­ber, the bank­ing sec­tor saw weaker-than-ex­pected loan growth of only 3.7% year-on-year.

In ad­di­tion, con­struc­tion play­ers had slower con­struc­tion and prop­erty billings, with some firms mak­ing pro­vi­sions for its con­tracts.

While the Malaysian auto sec­tor saw a 23% year-on-year core net profit growth for the nine-month pe­riod on the back of stronger earn­ings from Sime Darby Bhd and Pro­ton, UMW Hold­ings Bhd saw lower rev­enue from its au­to­mo­tive and equip­ment seg­ments due to slug­gish de­mand in the cur­rent quar­ter.

Ad­di­tion­ally, Tan Chong Mo­tor Hold­ings Bhd posted a 71% year-on-year de­crease in net profit for the third quar­ter, mainly at­trib­uted to weaker do­mes­tic op­er­a­tions and higher de­pre­ci­a­tion ex­penses.

Go­ing for­ward, Ng is hope­ful of a less dis­ap­point­ing fourth quar­ter.

“The typ­i­cal trend for the fourth quar­ter will show a lower ra­tio of cor­po­rate re­sults com­ing in be­low ex­pec­ta­tions.

“How­ever, com­pa­nies that are not do­ing well could potentiall­y make pro­vi­sions dur­ing the fourth quar­ter – re­assess­ing and par­ing down as­sets or writ­ing off in­ven­to­ries,” she said.

Mean­while, Rakuten Trade Sdn Bhd vice-pres­i­dent of re­search Vin­cent Lau said the bulk of the cor­po­rate earn­ings for the third quar­ter has met ex­pec­ta­tions, although this could pos­si­bly be due to lower earn­ings fore­casts.

“The oil and gas sec­tor has per­formed bet­ter dur­ing the third quar­ter.

“Com­pa­nies like Bumi Ar­mada Bhd, Ve­lesto En­ergy Bhd, Dayang En­ter­prise Hold­ings Bhd and Carimin Pe­tro­leum Bhd have re­ported steady earn­ings growth as Petronas re­sumes cap­i­tal ex­pen­di­ture spend­ing.

“We ex­pect the earn­ings mo­men­tum of oil and gas play­ers to im­prove next quar­ter, or sus­tain, at least,” said Lau.

He pointed out that the tech­nol­ogy sec­tor also show­cased sev­eral com­pa­nies that did well for the quar­ter, with the likes of UWC Bhd and Mi Tech­no­va­tion Bhd.

The sec­ond half of the year is ex­pected to be a stronger pe­riod for tech­nol­ogy com­pa­nies, partly driven a re­cov­ery in de­mand stem­ming from a pick up in iphone sales dur­ing the pe­riod.

FBM KLCI com­po­nent stocks that out­per­formed/ un­der­per­formed on a q-o-q ba­sis

Source: Amin­vest­ment Bank

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