Corporate earnings in 3Q improved from 2Q, says analysts

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KUALA LUMPUR (Dec 5): The corporate earnings season for companies listed on Bursa Malaysia in the third quarter of calendar year 2017 (3QCY17) have been generally seen as a positive improvement, compared to 2QCY17, driven by the banking, oil and gas (O&G), and plantations sector, according to analysts. 

Affin Hwang Investment Bank Research analyst Kevin Low said the growth during the quarter can be attributed to overall improving macro conditions, where gross domestic product (GDP) growth was stronger than expected at 6.2% in 3QCY17, and higher crude palm oil (CPO) and oil prices flowing down to corporate earnings in the banks, plantation and O&G sectors, with a combined market earnings of 56%. 

"The other notable sectors with strong earnings delivery are rubber products and technology, both of which are seeing demand outstripping supply and strong capex expansion respectively," Kevin wrote in a strategy today. 

However, Hong Leong Investment Bank Research (HLIB Research) analyst Sia Ket Ee opined although 3QCY17 staged an improvement over 2QCY17, it still remained a disappointing one. 

"Sectors that disappoint include building materials, education, healthcare, manufacturing and media," Sia said. 

"Nevertheless, we are turning positive that corporate margin squeeze may start to ease in early 2018, as the benefit of ringgit appreciation begins to trickle down to domestic earnings, while fiscal position improves further (lesser squeeze from government on the private sector)," he added. 

In the near term, Sia expects overall market sentiment to remain edgy, underpinned largely by unexciting earnings outlook, amid the uncertainty brought by the coming general elections. 

On the other hand, Affin Hwang's Low believes the market should see a broader-based earnings recovery in 2018, as growth shifts from exports to domestic demand. 

HLIB Research maintained its end-2017 FBM KLCI target at 1,760 points, and introduced its end-2018 FBM KLCI target at 1,880. 

Meanwhile, Affin Hwang Investment Bank Research kept its overweight stance on the FBM KLCI, but lowered its year-end target to 1,770, from 1,813 previously. 

As at 11.36am, the FBM KLCI was up 0.12 points or 0.01% at 1,713.25.