While markets have been moving upward in recent months, predominantly on heightened levels of expectations, earnings recoveries on the back of business-related improvements are picking up. — Bernama photo
KUCHING: Coming off a very challenging April to June reporting cycle which saw significant earnings degradation as a result of economic shutdowns, the third quarter (3Q) offers some glimmer of hope for Corporate Malaysia’s recovery in the quarters ahead.
Whether it was a situation in which the investment community had become overly pessimistic on prospects and made drastic cuts to expectations, the research team at Public Investment Bank Bhd (PublicInvest Research) sid the current period saw a good number of upside revisions, be it on earnings estimates, recommendations and/or valuations.
The current quarter, encouragingly, saw a number of surprises from business-related improvements, it said in its recap today.
“Earnings hits and misses is a noticeably better 67:33 per cent vis-à-vis the 61:39 per cent as at 2Q, offering some optimism of strength into the future, particularly with the expected economic recovery going into 2021,” it opined.
“While still early days, arresting of the recent downward trend (three weak quarters in the last five) is a welcome development.”
PublicInvest Research affirmed that the current result reporting cycle remains encouraging.
“While 2020 remains a washout year by all measures, the coming calendar offers some glimmer of hope particularly if the global economic recovery picks up momentum sooner than expected,” it continued.
“While markets have been moving upward in recent months, predominantly on heightened levels of expectations, earnings recoveries on the back of business-related improvements are picking up.
“While current upward adjustments are not to the cyclically-critical sectors like banks, properties and construction as yet, we expect to see improvements in the coming year due to pick-up in activity, underpinned by the global and our economic rebound.”
While global growth is expected to rebound from an unprecedented year wrecked by the Covid-19 pandemic, PublicInvest Research saw that a recovery which remains susceptible to setbacks is now being fueled by optimism surrounding progress on various vaccines.
“Internationally, the dawning of a new era with Joe Biden very likely to be sworn in as the 46th President of the US is expected to provide some stability to external market conditions,” it explained.
“Domestically, some measure of political calm may have returned for the next two years until the 15th General Election, with the Pakatan Harapan coalition unable to mount a notable challenge to past or even current proceedings, internal bickering within the current ruling coalition notwithstanding.”
On a sectoral comparison, Affin Hwang Investment Bank Bhd (AffinHwang Capital) said that generally positive earnings surprise was broad-based across sectors with at least one company surprising on the upside in each of the sectors under coverage.
“However, it was really the plantations, gloves, electronic manufacturing services (EMS) and tech sectors that stood out, not merely with positive surprises, but also registering earnings growth on a yearly basis,” it said in its notes.
“Planters benefitted from higher-than-expected crude palm oil and palm kernel average selling prices (ASPs) that were partly attributable to improved demand, tight stock levels, price increases of other edible oils and weather uncertainties.”
Meanwhile, AffinHwang Capital said performance for the glove manufacturers continued to surprise even after several quarters of exceedingly strong results, as realised ASPs were higher than previously forecasted.
With a spike in Covid-19 cases, glovemakers remained bullish on their ASP guidance for 4Q20, it added.
The research firm also highlighted the trend of more rating upgrades than downgrades in 3Q, with 18 ratings upgrades and 3 ratings downgrades against 2Q’s 11 rating upgrades and 9 downgrades.
“Broadly, this was to take into account our more optimistic views on recovery plays and that most of their stock prices have bottomed out given the good news on vaccines.”