Mixed bag of results
Analysts say banks meet expectations while planters and glove makers disappoint
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