WITH the majority of stocks on Bursa Malaysia posting disappointing results, analysts have advised investors to stay away from aviation-related companies and to keep an eye on consumer, property, construction, and oil and gas stocks.
The results season, which concluded on Aug 29 (Friday), saw lacklustre performances in various sectors, with mixed views on the outlook of these sectors.
Among the companies whose earnings came in below expectations were Genting Malaysia Bhd, China Stationery Ltd, AirAsia X Bhd and Malaysian Airline System Bhd (MAS).
Meanwhile, sterling results were seen at DRB-Hicom Bhd, which saw a 950% jump in net profit, as well as TSH Resources Bhd (105%), Mah Sing Group Bhd (21%) and IHH Healthcare Bhd (33%).
Maybank IB Research head of research Wong Chew Hann says the research house has seen more disappointing results than positive ones for the companies under its coverage.
“Out of the 75% of companies that we cover which have reported results, we have seen more disappointing results than positive ones, although some were in line with our expectations,” Wong tells The Edge.
She advises investors to look at stocks that have been stable in the long run, adding that the performance of those in the oil and gas, telecommunications and real estate investment trust sectors were in line with expectations.
The aviation sector has seen the most disappointing results so far, largely dragged down by AirAsia X and MAS, she says.
AirAsia X saw its net loss for the second quarter ended June 30 (2QFY2014) balloon to RM128.8 million from RM32.3 million in the previous corresponding quarter, on the back of higher revenue of RM671.6 million from RM491.1 million.
The low-cost airline’s shares plunged to as low as 74.5 sen on Aug 21, from 88 sen on Aug 13. It closed at 78 sen on Aug 29.
MAS, which its controlling shareholder Khazanah Nasional Bhd intends to take private, also saw its net loss double. Its net loss widened to RM307 million in 2QFY2014, from RM176 million in the previous corresponding period. Revenue declined marginally to RM3.6 billion, from RM3.8 billion.
The stock closed at 25 sen on Aug 28 (Thursday). Its shares were suspended on Aug 29, pending an announcement on the massive restructuring plan.
JP Morgan’s Corrine Png says airlines worldwide were affected by muted traffic growth in June. Premium travel demand growth in Asia and Europe decelerated significantly in June, while demand for economy class travel rose 4%, she says.
Nevertheless, Png expects passenger traffic to pick up in the second half of this year.
Meanwhile, most consumer stocks have also seen a dip in net profit despite posting higher revenue, indicating the strategy to boost sales at the expense of profit margin, and higher input costs, has eaten into their margin. Analysts attribute the lower performance to the sale and festive seasons.
Stocks such as Nestle (M) Bhd, Padini Holdings Bhd and OldTown Bhd were among the consumer stocks with results below analysts’ expectations.
Nestle posted a lower net profit of RM118.5 million for 2QFY2014, from RM140.2 million in the previous corresponding quarter. Revenue increased to RM1.3 billion, from RM1.2 billion.
Padini also saw a similar earnings pattern in its fourth quarter ended June 30. Net profit decreased to RM13.7 million from RM16.1 million, on the back of higher revenue of RM196 million from RM177 million.
OldTown posted a lower net profit of RM11.7 million for the first quarter ended June 30, compared with RM12.2 million in the previous corresponding period. Revenue rose to RM97.9 million, from RM91.2 million.
Despite the decline in net profit, all three stocks have mostly been given “buy” ratings by various research houses, which see consumer stocks as a good investment choice for the long run.
Another head of research says some big-cap companies have not performed up to expectations. She points out that research houses have a “buy” call on most plantation stocks. But Felda Global Ventures Holdings Bhd, for one, has posted disappointing results on higher revenue.
Felda’s net profit halved to RM151.9 million in 2QFY2014, from RM322.7 million in the previous corresponding quarter. This was on the back of a higher revenue of RM4.1 billion, from RM2.99 billion. Earnings per share also fell to 4.2 sen, from 8.8 sen.
Banking stocks have also been attracting investor interest, since news surfaced of the merger between CIMB Group Holdings Bhd, RHB Capital Bhd and Malaysia Building Society Bhd.
Investors have increasingly been accumulating shares of CIMB and RHB, as the stocks are seen as safer options prior to the merger. However, some analysts are concerned about the slow loan growth, due to Bank Negara Malaysia tightening the lending policy.
The two bank counters surged in August alone. CIMB rose 8.4% to close at RM7.34 on Aug 29, from RM6.82 on Aug 08. RHB jumped to as high as RM9.50 on Aug 19, from RM9 on Aug 15. It closed at RM9.20 on Aug 29.
For 2QFY2014, CIMB’s net profit was slightly lower at RM964.1 million, from RM1.1 billion in the previous corresponding quarter. Its revenue was flat at RM3.4 billion.
RHB posted a higher net profit of RM556.5 million for 2QFY2014, from RM410.3 million. Its revenue also grew to RM2.5 billion, from RM2.3 billion.
Mercury Securities head of research Edmund Tham believes investors should look at medium-cap stocks, considering the valuation of the big caps have been rather expensive. He adds that investors should look at property and construction stocks that have strong order books and future projects locked in.
According to Bloomberg, mining and construction stocks have recently seen increasing interest. The property index also rose as high as 1,524.4 points on Aug 18, and closed at 1,487.7 points on Aug 29.
Indices that have seen investors withdrawing from the industry, include technology and plantation.
This story first appeared in The Edge weekly edition of Sept 01-07, 2014.