This article first appeared in Capital, The Edge Malaysia Weekly on November 27, 2017 - December 3, 2017

EXPORT-ORIENTED companies are expected to shine in the third-quarter earnings season that is currently underway, thanks to strong export numbers in July and August. But with Malaysia’s economy projected to slow in the second half of the year or, at best, match the first half’s performance of 5.7%, experts are cautious.

“If you look at the consensus forecasts for gross domestic product, most are expecting slower growth in the second half compared with the first half of the year, which could be reflected in the 3Q2017 numbers,” says Kenanga Investment Bank Bhd research head Chan Ken Yew.

Stronger-than-expected GDP growth of 5.7% in 1H2017 could mean the country could see slower growth in the second half if full-year economic growth is at the lower end of the Finance Ministry’s new full-year forecast of 5.2% to 5.7%.

While Malaysia still reported double-digit export growth in September, the figure was lower at 14.8% compared with 21.5% in August and 30.9% in July.

“We may see some strong numbers from these export-oriented players, based on the export numbers,” Chan says.

Top Glove Corp Bhd, for example, saw a 51% year-on-year jump in net profit to RM98.62 million for its fourth quarter ended Aug 31, 2017, on the back of a 25% increase in revenue to RM902.42 million from a year earlier. The better performance was attributed to higher sales in all regions.

Hartalega Holdings Bhd also saw a surge in net profit for its second financial quarter ended Sept 30, 2017, to RM113.34 million or 6.87 sen per share, from RM71.22 million or 4.34 sen per share a year ago. Revenue for the quarter improved 34% to RM584.62 million due to a 30% increase in sales volume and the strengthening of the US dollar.

Besides the rubber glove sector, semiconductor players could see better performance as well, Chan says.

He notes that the smartphone segment continues to see growth, helped by the launch of flagship models by the large vendors in the second half of 2017. Semiconductor makers would also benefit from the increasing usage of chips in vehicles.

ViTrox Corp Bhd’s net profit jumped 41% to RM22.41 million from RM15.87 million a year earlier, while revenue grew 46% to RM84.36 million. The performance was driven by higher demand from its widened customer base under its automated board inspection (ABI) and machine vision system (MVS) divisions.

Unisem (M) Bhd reported a 5% increase in its net profit to RM40.45 million from a year earlier amid higher sales, improved average selling prices and the stronger US dollar. Revenue for the quarter rose to RM382.32 million from RM321.95 million in the previous year.

Inter-Pacific Securities Sdn Bhd research head Pong Teng Siew is looking out for improvements in third-quarter corporate earnings — something that could boost sentiment in the local market.

Closing at 1,718.11 points last Thursday, the bellwether FBM KLCI is up 4.65% from the start of the year, having retreated 4.14% from its hitherto year-high of 1,792.35 points on June 14.

The broader FBM Emas, meanwhile, is up 8.18% at 12,403.98 points last Thursday, about 3% below its year-high of 12,783.58 points on June 14.

Pong notes the earnings decline seen at Tenaga Nasional Bhd, which he deems one of the flag bearers of Corporate Malaysia.

“Its actual net profit fell but it paid out dividends exceeding their earnings per share for the quarter. I don’t think it can continue to pay out high dividends in the upcoming quarters,” he says.

TNB’s net profit fell 2% to RM1.72 billion in the fourth quarter ended Aug 31, 2017, despite revenue rising 11% y-o-y to RM12.46 billion, as operating expenses rose. Despite lower earnings, the utility giant proposed a 44 sen per share final dividend, which works out to RM2.49 billion, bringing total dividends to 61 sen per share or a record high annual payout of RM3.5 billion.

Not all exporters have brought cheer just yet.

Higher material costs caused Malaysian Pacific Industries Bhd’s (MPI) net profit to fall 8% to RM36.24 million for the first quarter ended Sept 30, 2017,  despite higher revenue of RM387.63 million compared with RM358.01 million a year earlier.

Nonetheless, AmInvestment Bank analyst Lavis Chong says MPI’s results were largely in line with estimates, after stripping out net forex losses of RM1.3 million.

“Going forward, we believe MPI’s earnings will pick up in the second half of the financial year ending June 30, 2018, as the company’s new product introductions over the past three quarters translate into job wins,” Chong says in a note.

Meanwhile, the higher average crude palm oil (CPO) prices in 3Q2017 of around RM2,680 per tonne, compared with RM2,681 per tonne in 3Q2016, lifted the earnings of a couple of the plantation players.

Sime Darby Bhd saw its net profit more than double to RM1.32 billion for the first quarter ended Sept 30, from RM522 million in the previous year, driven by better results from its property and plantation divisions.

Revenue rose more than 17% to RM8.14 billion from a year earlier.

Besides a disposal gain, the conglomerate’s performance for the quarter was supported by higher fresh fruit bunch production and higher CPO prices realised and recognition of share of profits from the Battersea project, which boosted its property division performance.

United Plantations Bhd also posted better growth in net profit for the third quarter ended Sept 30, up 19% y-o-y to RM83.14 million on better performance of its plantation and refinery segments.

MIDF Research expects PPB Group Bhd to deliver “decent” results for the third quarter, albeit weaker on a y-o-y basis, based on Wilmar International Ltd’s performance, which was supported by higher commodity prices and production volume.

“We believe that PPB’s 3QFY2017 earnings should be weaker y-o-y, but stronger quarter on quarter. This is in line with Wilmar’s 3QFY2017 core net profit of US$324 million, which declined 16% y-o-y but surged 768% q-o-q,” the research house says.

Among exporters and heavyweights slated to release quarterly earnings by end-November are Malayan Banking Bhd, Axiata Group Bhd, Telekom Malaysia Bhd, Karex Bhd, Kossan Rubber Industries Bhd, Inari Amertron Bhd, Supermax Corp Bhd and Uchi Technologies Bhd. 

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