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This article first appeared in The Edge Financial Daily on August 23, 2018

KUALA LUMPUR: More than half or 53% of the companies that announced their second quarter (2Q) earnings between Aug 13 and Monday 20 — 54 out of 102 — experienced a fall in their share prices after doing so.

Of the total, only 36% have seen an uptick in their share prices, while the remainder were left unchanged.

This was despite the fact that over half the companies that announced their results during the period recorded year-on-year (y-o-y) improvements in their bottom line, with three returning to the black and another 13 narrowing their losses.

Areca Capital Sdn Bhd’s chief executive officer Danny Wong shared with The Edge Financial Daily that the earnings reported so far have largely been in line with his expectations.

“So far, most of those I cover are in line with what I expected. There are some outperformers like the semiconductor players … I have also seen some disappointments in [certain] conventional business [sectors], as well as some conglomerates,” Wong said in a telephone exchange.

Earlier this month, Wong forecast that the 2Q earnings season would largely be unexciting, with a few exceptions in the electrical and electronics space, as well as the oil and gas (O&G) industry.

Vincent Lau, vice president of Rakuten Trade Sdn Bhd — the first completely online equity broker — is also of the view that most of the earnings announcements he has seen so far for stocks under Rakuten’s coverage have been within expectations.

Regardless, the market has seen some declining share prices on counters that have reported improved financial performance. Among them are Velesto Energy Bhd, Press Metal Aluminium Holdings, and Sam Engineering & Equipment (M) Bhd.

Velesto, formerly known as UMW Oil & Gas Corp Bhd, announced its second quarter financial year ended June 30, 2018 (2QFY18) results on Monday. While it remained in the red, it halved its 2QFY18 net loss to RM24.1 million from RM51 million from a year ago.

Bloomberg data shows that seven out of eight analysts have given a “buy” to Velesto, while one has it on “hold”, with an average 12-month target price (TP) of 32.3 sen.

While CGS-CIMB, which has a “buy” on Velesto, stated in a note on Tuesday that the group’s 2QFY18 earnings came in below expectations, it expects Velesto’s performance to pick up in the second half of FY18, with improved utilisation of its jack-up rigs.

Affin Hwang IB Research analyst Tan Jianyuan who also kept a “buy” on the O&G group, said in his Tuesday report that “the best has yet to come as earnings momentum will be stronger with the recent drilling contract wins for Naga 3,4,5 and 7”.

Their optimism on Velesto’s prospects notwithstanding, the group’s share price fell 3.45% or one sen to 28 sen on Tuesday, after about 13.7 million shares were traded.

Press Metal is another company that has seen its share price retreat although its 2QFY18 net profit grew 6.9% y-o-y to RM160.6 million from RM150.2 million. Three analysts have the stock on “hold”, while another two gave it a “buy”.

The group’s share price slipped 2.45% to RM4.78 on Tuesday, from RM4.90 before the release of its 2QFY18 results. But one of the reason for the retreat could be the group’s higher valuation at a trailing price-earnings of about 30 times after the stock climbed 40.9% from a year ago.

Sam Engineering, which reported the results for its first quarter ended June 30 (1QFY19) last Wednesday, saw a strong improvement in its bottom line as net profit jumped 87.4% y-o-y to RM17.6 million from RM9.39 million.

But its stock still retreated. The group’s share price, which settled at RM7.70 a day before the results were announced, has since slipped 1.7% to close at RM7.57 on Tuesday. It should be noted that the stock was on a climb more than a month before the 1QFY19 results were released.

An investment fund manager with a local asset management company, who declined to be named, said some of these declines may be due to uncertainties in the sectors the companies belong in.

“If you look at some of the companies like Press Metal and Sam Engineering, while [their] results are in line with expectations, there are concerns over the sustainability of such growth. The market tends to have a forward-looking view when it comes to pricing. Let’s not forget that both Press Metal and Sam Engineering have already seen a strong rally compared with a year ago,” he said.

On Velesto, he said O&G is a sector investors are interested in now, but are reluctant to commit to at this juncture, which may have contributed to the decline of O&G counters.

“The financial results seem to point that the worst is over and the company (Velesto) has been in recovery, but very few [investors] would be willing to put their money into it until a firmer and more sustained earnings trend is seen.

“You look at the debt level, you look at the fluctuation of oil prices. All these, when taken together, would affect the share price. So while analysts might give a ‘buy’ call, many would still take a wait-and-see approach,” he noted.

As for companies that have seen a rise in their share prices, these include Guan Chong Bhd, Allianz Malaysia Bhd and Carlsberg Brewery (M) Bhd, which have all seen improvements in their 2Q earnings.

Guan Chong saw an 88% jump in net profit to RM43 million, while Allianz’s earnings improved 35.2% to RM89.9 million and Carlsberg’s net profit grew 4.9% to RM63.9 million.

It seems their quarterly report cards are satisfactory to investors, as evidenced by the 9.1% rise in Guan Chong’s share price, about 5% for Allianz, and 4.4% for Carlsberg.

After the release of its 2Q results on Aug 16, TA Securities Holdings Bhd upgraded Carlsberg to “buy”. Prior to that, only two other research houses have a “buy” call on it.

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