KUALA LUMPUR, Dec 2 — Malaysia’s corporate earnings beat expectations by growing three per cent year-on-year (y-o-y) in the third quarter of 2020 (Q3 2020), said CGS-CIMB.
In a note today, the research house said the Q3 2020 growth was the first quarterly gain seen over the last eight quarters, or since Q3 2018, thanks to record earnings from glove makers during the quarter.
“The key reasons for the growth in y-o-y earnings were record earnings from the glove makers due to a significant rise in average selling prices (ASPs) for gloves and strong utilisation rates,” it said.
It noted that the significantly stronger palm oil prices also boosted Q3 earnings, while the technology and electronic manufacturing services (EMS) sectors also produced better y-o-y earnings due to strong utilisation rate in Q3 from backlog orders and strong demand.
“These more than offset the weaker earnings from the other sectors,” it said.
On a quarter-on-quarter (q-o-q) basis, CGS-CIMB said Q3 2020 earnings surged 102 per cent, mainly due to stronger performances from all sectors except aviation, insurance, services and shipping.
According to CGS-CIMB, earnings recovery in Malaysian companies was stronger than expected post the Movement Control Order (MCO) in Q2 2020.
“Based on the 130 companies that we tracked during this latest results season, 35 per cent beat our expectations compared with 25 per cent in Q2 2020, as earnings recovery was stronger than expected post the MCO in 2Q20,” it said.
It described the Q3 2020 performance as a positive surprise and could be attributed to analysts being too conservative on their earnings forecasts in some instances, due to Covid-19-related volatility in demand movements and selling prices.
“The higher outperformer ratio is a positive surprise and came mainly from higher crude palm oil (CPO) prices, stronger revenue due partly to backlogged orders for manufacturers, and cost containment efforts by some companies,” it said.
Moving forward, CGS-CIMB expected corporate earnings to be mixed q-o-q in Q4 2020-forecast (2020F), as sequential earnings recovery would be negatively impacted by the reinstatement of the conditional movement control order (CMCO) from mid-Oct to early-December 2020 in major cities in the country.
Meanwhile, the research house raised its end-2020F FBM KLCI target to 1,628 points based on 15.4 times price-to-earnings (P/E) ratio from 1,520 points earlier.
It also introduces its end-2021F FBM KLCI target of 1,732 pts based on 16.2 times P/E ratio.
“We are of the view that the expectation of strong recovery in earnings in the first half of 2021F due to availabilities of Covid-19 vaccines and higher liquidity due to rising government spending and low interest rates are likely to keep retail interests in the market,” it added. — Bernama
