PETALING JAYA: The recent third-quarter (Q3) corporate earnings reporting season has been somewhat underwhelming, yielding a mixed bag of results and few catalysts to drive the market, according to analysts.
Fundsupermart senior research analyst, portfolio management Jerry Lee Chee Yeong said looking at the top 30 stocks comprising Bursa Malaysia, there has been a 3-4% contraction in earnings on a year-on-year (yoy) basis.
“The positive side is that if we look at revenue growth, there has been up to 3% of positive revenue growth. It’s just that if you look from an earnings perspective, most of the companies are generating contraction, and if you are comparing to the consensus analyst estimates, it’s worse than expected,” he told Sunbiz, adding that based on data, the earnings downside for the KLCI component stocks came in at around 18-19%.
He noted that the small-cap stocks had outperformed the broader market during the quarter.
Drilling down to the individual sectors, Lee said the financial and energy sectors had been the biggest drag on the earnings growth of the overall KLCI.
“If you look at the energy sector like Petronas Chemicals Group Bhd for example, just recently their earnings went down more than 50% on a yoy basis. Also for the financial sector, due to the overnight policy rate cut, most of them are seeing a compression in terms of net interest margin,” he said.
CIMB Research head of Malaysia research Ivy Ng said performance-wise, there appear to be a number of companies that underperformed during the quarter.
“Based on the data we have up until a couple of days ago, I think we still see quite a lot of underperformers in this quarter. However, performance is relative to our expectations, and I think there are a number of reasons as to why the results were not up to our expectations, such as impairments, higher-than-expected costs, weaker revenue and margins. Nevertheless, the ratio of underperformers seems to be higher.”
“Sector-wise, performance is mixed. (There was) no one particular sector that outperformed or underperformed,” she added.
Leinves PLT chief investment officer William Ng said while the quarter’s corporate earnings had not surprised him, the property and construction sectors were likely the ones that had fared the worst.
“I can’t say for sure until all the corporate results have been released, but for property... the Home Ownership Campaign (HOC 2019) will only boost unbilled sales, however it will make no meaningful difference to their bottom lines.
“Construction has been impacted by the pulling back of infrastructure projects, and those initiatives announced in Budget 2020 will only come in next year. Many have been affected by the adoption of the new reporting standard MFRS 16, since that will impact their balance sheets,” he said.
Looking ahead, Lee said while he did not have a year-end target for the KLCI, he expects the benchmark index to trend slightly higher, due the window dressing phenomenon typically observed at the end of Q4.
However, he foresees technology stocks to perform better next year, due to an anticipated increase in global demand for semiconductors.
“Most local tech players are in the semiconductor space, and so the market has priced in an expected uptick in demand and sales due to a higher hope of resolution from the US-China trade war, as well as the implementation of 5G infrastructure,” he said.
Ivy said the bank’s year-end KLCI target would remain at 1,583 points, and it is unlikely to see a significant revision.
“I think generally with such a short time left in the year, it’s unlikely for us to make a significant revision to the target. We don’t know if global markets will take a sudden turn, so we think it will be range bound from here, I don’t think there will be a major movement either way.
“There could be a little bit of reaction from the results and a bit of portfolio repositioning by fund managers ahead of the new year. There will also be a bit of profit taking happening before the typical window dressing starts,” she said.
Meanwhile, William said he is maintaining the year-end target at 1,600 points.
source https://www.thesundaily.my/business/another-quarter-of-lacklustre-corporate-earnings-analysts-BH1687506
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