This article first appeared in Capital, The Edge Malaysia Weekly on June 7, 2021 - June 13, 2021

AFTER an encouraging fourth quarter performance in 2020, companies on Bursa Malaysia kicked off 2021 with a mixed bag of results, which analysts say were generally within market expectations.

And despite the reimposition of a full lockdown, the upcoming quarters are not expected to be as bad as the same period last year as the growth trajectory remains largely intact, driven by exports and external demand.

Owing to the potential impact of the latest round of Movement Control Order (MCO), Bursa Malaysia has granted an automatic one-month deadline extension to Main Market- and ACE Market-listed companies to issue their quarterly financial statements due on May 31. However, most of the corporates have already released their quarterly results.

Among the 182 companies with a market capitalisation of above RM1 billion, 83 companies recorded a year-on-year (y-o-y) drop in net profit while 108 companies saw lower earnings quarter on quarter (q-o-q).

The aggregate reported earnings of FBM KLCI’s 30 constituents rebounded to RM20.3 billion in 1Q2021, representing a 167.4% y-o-y and 32.9% q-o-q growth, according to MIDF Research.

Although 2Q and 3Q earnings may come under pressure again, MIDF Amanah Investment Bank Bhd research head Imran Yassin Yusof says the bank has not changed its earnings revision by much.

“We actually revised earnings upwards for the glove, banking and plantation [sectors]. The current lockdown is not as restrictive as MCO 1.0. A lot of sectors are allowed to open. Judging from the export numbers, we believe 2021 will be a strong year. That’s why we don’t see much impact in terms of earnings,” he tells The Edge. “Of course, discretionary consumer items, REITs (real estate investment trusts) and property might see some sort of weakness in terms of earnings. All in, we believe the impact on earnings will not be as serious as MCO 1.0.”

With mass vaccination, he believes corporate earnings will stabilise in 4Q. “That’s why we are not cutting earnings like what we did last year,” he says.

On a y-o-y basis, Imran notes that 2Q and 3Q will still be better than the corresponding quarters last year.

Kenanga Research head Koh Huat Soon is hopeful that the market could enter 3Q in a much better shape now that the country is under full lockdown.

“The next few weeks are critical. If the situation improves, we will see a bottom this quarter, with a pickup in 3Q and 4Q. Then investors can make decisions based on the second-half outlook. Obviously, there will be earnings pressure, but more important is the outlook.”

He believes the recovery theme is still intact as the lockdown is a temporary setback. “Investors are not so scared as the situation can be improved. People are seeing the urgency to get vaccinated and they are less doubtful about the safety of the vaccine.”

Imran says the lockdown impact will be mitigated by exports and external demand. “The growth trajectory is there. We don’t think it will be two years of negative economic growth. Just that the lockdown will moderate the pace of recovery. Previously, we were expecting 6.2% economic growth this year, but now [it is] downgraded to 4.6%.”

Given the ample liquidity, Koh sees investors searching for value stocks, which are trading at low price-to-book ratios.

“There has been a switch from growth to value stocks — from construction to REITs and gaming stocks. Genting Bhd is trading at multiple standard deviations below the mean, which is cheap compared with its past record. It needs catalysts when the travel ban is eased.”

Shares in Genting and Genting Malaysia Bhd rose 4.28% and 5.78% respectively over the first three days of last week. Other recovery stocks such as AirAsia Bhd and Malaysia Airports Holdings Bhd were up 7.14% and 7.27%.

Around the same time a year ago, the local bourse was seeing a strong rebound in share prices despite the lacklustre financial performance. A year after the first lockdown, the disconnect between the market and the economy remains.

“People might be hoping the same will happen this time around. Our advice is to buy on weakness. There will be headwinds in the short term and they will affect sentiment. But investors would have to look beyond that,” Imran says.

He remains positive on the glove, banking and plantation sectors. “Glove makers will see another good quarter as well, on the back of strong demand. For the banking sector, banks might increase their provisions under the current lockdown, but the situation will be better than last year.

“Owing to strong crude palm oil (CPO) prices, plantation earnings will remain quite strong. Investors can also look out for the oil and gas (O&G) stocks as Brent oil price has reached US$71 per barrel.”

Koh points to the construction, media and gaming sectors as leading the earnings misses.

Let’s take a look at the latest quarterly results of the top 50 largest companies on Bursa Malaysia to see how they performed.

The glove sector continued to be the top performer, driven by persistent strong global demand for gloves.

Top Glove Corp Bhd, the world’s largest glove maker, saw its net profit leap 24 times y-o-y to RM2.87 billion, but q-o-q growth was more muted at about 20%.

Despite maintaining net profit at above RM1 billion, Supermax Corp Bhd reported a 5.12% q-o-q decline as average selling prices eased.

Nonetheless, Hartalega Holdings Bhd and Kossan Rubber Industries Bhd sustained their q-o-q earnings growth at 11.73% and 92.19% respectively.

Almost all banks delivered strong results, except AMMB Holdings Bhd, which suffered from one-off exceptional items totalling a massive RM4.77 billion, including its 1Malaysia Development Bhd (1MDB) settlement with Putrajaya.

CIMB Group Holdings Bhd posted a record quarterly net profit of RM2.46 billion, thanks to a one-off revaluation gain of RM1.16 billion from the deconsolidation of its unit TNG Digital.

Skyrocketing CPO prices swelled the earnings of plantation firms.

Kuala Lumpur Kepong Bhd and its parent company Batu Kawan Bhd registered net profits that were 18-fold and 16-fold higher at RM490.44 million and RM261.08 million respectively, compared with the same period last year.

IOI Corp Bhd’s net profit jumped to RM401.3 million from RM100,000 before, partly on the back of a divestment gain.

However, high CPO prices could not help state-owned FGV Holdings Bhd, which incurred a net loss of RM35.42 million, owing to an adjustment to its fair value under the land lease agreement with its ultimate shareholder Felda Holdings Bhd. Last year, CPO prices rose an average of 29% and year to date they have gained a further 10%.

Among the big four, only Telekom Malaysia Bhd delivered a positive performance. Its net profit doubled to RM325.47 million on the back of higher contribution across all of its business segments.

Axiata Group Bhd — whose unit Celcom Axiata Bhd is in talks to merge with Digi.Com Bhd — reported a 59.83% fall in net profit to RM75.56 million, mainly owing to higher depreciation and amortisation costs and a lower one-off gain.

Net earnings of Digi.Com and Maxis Bhd slipped 20.23% and 6.44% to RM264.83 million and RM334 million respectively.

In line with the global upcycle, technology firms reported robust earnings.

Malaysian Pacific Industries Bhd (MPI) achieved another record-high quarterly earnings of RM74.37 million, which was threefold higher than the same quarter a year ago.

Net earnings of Inari Amertron Bhd and ViTrox Corp Bhd came in stronger at RM81.95 million and RM30.70 million respectively.

Downstream player Lotte Chemical Titan Holding Bhd posted its best quarterly results of RM440 million in net profit since its relisting in July 2017, underpinned by the rising polymer-naphtha spread trend.

Its peer Petronas Chemicals Group Bhd saw a near tripling of net profit to RM1.46 billion.

However, local contractors such as Dialog Group Bhd reported lower earnings owing to a slowdown in business activity.

Mr DIY Group (M) Bhd outperformed its peers by registering a 113.5% jump in net profit to RM124.79 million, nearly mirroring its share price, which has doubled since its listing in October last year. The home improvement retailer has been added as a constituent of the benchmark FBM KLCI in the latest semi-annual review of the FTSE Bursa Malaysia Index Series.

Nestlé (M) Bhd’s bottom line was affected, however, by declining out-of-home sales activities arising from the Covid-19 pandemic, while Fraser & Neave Holdings Bhd managed a marginal growth of 1.3% in net profit on the back of higher sales and a favourable product mix.

In their latest quarterly results, Genting slipped back into the red while Genting Malaysia continued to bleed, dragged down by lower business volume from the gaming and non-gaming segments.

Number forecast operators Berjaya Sports Toto Bhd and Magnum Bhd suffered a 61.6% and 86.48% plunge in net profit to RM18.68 million and RM7.52 million respectively.

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