Published September 2, 2009

M'sian earnings outlook brighter on Q2 results

Analysts expect smaller profit fall this year, possible rebound next year

By PAULINE NG
IN KUALA LUMPUR

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MALAYSIAN corporations could see a smaller drop in earnings this year following their better-than-anticipated results in the second quarter, which have also boosted expectations that earnings could rebound by double digits next year.

Shaping up: Warmer response to new launches is raising hopes of a resurgent property market ahead

Analysts rate the outlook to be more positive for construction and property, as well as banks which exceeded expectations in the second quarter.

Stockbroker Hwang- DBS-Vickers saw the proportion of companies that disappointed in its universe of coverage drop to 18 per cent in Q2, 10 per cent less than in the preceding quarter.

Almost similar to the last quarter, some 18 per cent beat its expectations, but 64 per cent or nearly 10 per cent more than in the first quarter posted earnings that were within expectations.

Intensely criticised for its ill-timed acquisitions of Bank Internasional Indonesia and Pakistan's MCB Bank, the country's largest financial group Maybank was the biggest disappointment after it decided to write off nearly RM2 billion (S$817 million) in impairments on the banks.

However, its counterparts Bumiputra-Commerce, Hong Leong, EON Capital and RHB Capital proved more resilient in managing the effects of the global financial crisis, beating the consensus forecast, albeit mainly on better non-interest income.

In a market focus report, HwangDBS said it favoured the sector because non-interest income was expected to remain robust on the back of an improved pipeline of debt and equity deals in the second half, as well as stronger growth on lower provisions and an expansion in loans.

Although the construction sector turned in a range-bound performance in the quarter just past, it expects positive news flow in the coming 12 months on the back of pump-priming efforts to throw the spotlight on the sector.

Greater clarity should emerge in the national budget next month on planned spending, but the larger outstanding projects include a new RM2 billion low cost carrier terminal in Sepang by 2011-2012, the interstate water project, and infrastructure for Iskandar Malaysia.

The outlook for the property sector is also considered brighter. Earnings came in within expectations in the second quarter, but warmer consumer response to new launches - especially in the Klang Valley and Penang - have raised hopes that a resurgent property market might not be too far off.

Property players think prices could soon be revised upwards should the take-up rates continue to be encouraging. The gradual roll back of incentives would boost margins further.

HwangDBS expects earnings to contract by some 8 per cent this year, with the main drag coming from plantations largely owing to lower crude palm oil price assumptions of RM2,300/ mt versus RM2,864/mt last year.

Corporate earnings are projected to rebound 15 per cent next year on lower provisions and higher non- interest income for banks as the capital markets recover, as well as the absence of foreign exchange losses for plantations.