Published June 5, 2009

Most sectors in M'sia turn in lower Q1 profits

Consumer, utilities, telecommunications industries are exceptions

By PAULINE NG
IN KUALA LUMPUR

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THE steeper than expected contraction in the first quarter of the Malaysian economy was reflected in corporate earnings with declines posted across most sectors, consumer, telecommunications, and utilities being noticeable exceptions.

Nearly two-thirds of Maybank-IB's 72-stock universe suffered lower sequential quarterly net profits, with 24 per cent surprising on the downside.

Bar one or two stocks, all other counters in the sectors of gaming, oil & gas, property, Reits, construction, building materials, semi-conductors, plantations and tolled roads, saw a drop in quarterly sequential earnings.

The consumer sector escaped largely unscathed, the net profits of the sector falling by a slight 2.6 per cent, quarter-on-quarter, but strong brand franchises British American Tobacco, JT International, Carlsberg and Nestle, managed to post better quarterly profits.

Another sector which proved resilient was rubber gloves. Compared to the same time last year when manufacturers were grappling with high fuel and latex costs, glove makers are enjoying a good run, their combined quarterly profits growing nearly 12 per cent in the first three months of the year after expanding 16 per cent in the previous quarter.

Maybank-IB observed that the aggregate recurring net profit of stocks in its universe fell by only 3.5 per cent q-o-q - a fact it attributed to the skewing of results by the five large cap stocks of Telekom, Tenaga, Axiata, Petronas Gas and AirAsia. Three of the firms were monopolies, it noted, while Axiata and AirAsia had experienced an earnings collapse in earlier quarters and their profit recovery had distorted the picture.

Excluding the five, the q-o-q profit drop was closer to 14 per cent, a rate of decline that might have in part prompted the stockbroker to set its year end target for the Kuala Lumpur Composite Index at 990 points - some 7 per cent lower than the KLCI's current level of 1,063 points.

CIMB agreed the corporate results season had been poor, but believes there were sufficient bright spots to indicate an upswing ahead. 2009 core net profit forecasts had been relatively stable and had started to inch up on a monthly basis, it observed.

'The raising of earnings forecasts estimates is more pronounced for 2010, which indicates that analysts are increasingly confident that earnings prospects will improve next year,' said the broker, which has seen fit to raise its year-end target to 1,220 from 1,060.

Its preferred sectors are mainly 'cyclical' ones such as construction, property, and oil & gas. Construction - and building materials - is expected to benefit from the RM60 billion (S$24.85 billion) stimulus package since about a third worth is targeted at infrastructure projects.

Given the sharper than expected contraction in the real economy in the January to March period, coupled with the minimal rise in government consumption of 2.1 per cent y-o-y compared to an increase of 12.7 per cent in the fourth quarter, analysts consider the government's fiscal policy impact had yet to kick in.

'The silver lining is that the government is now under greater pressure to implement its fiscal stimulus plans quickly,' Maybank-IB commented, adding construction and building materials are two to three quarters away from improved revenues.

This however assumes that pump priming would intensify in the second half, and is effectively executed - a concern some analysts believe remains given that politicking has yet to abate.