KUALA LUMPUR: The recently concluded earnings reporting season for Malaysian public-listed companies saw some registering their best quarterly results while challenges appeared for others, with overall earnings growth momentum expected to slow going forward.
CIMB Group Holdings Bhd, for instance, achieved a record quarterly net profit of RM915.7 million in 3Q ended Sept 30 from RM726.83 million a year ago while Sarawak-based Hong Seng Lee Bhd also chalked up a record RM20.29 million during the quarter.
Budget carrier AirAsia Bhd also registered record earnings of RM327.3 million — its best quarter ever — for 3Q. But the lack of future earnings growth drivers, this year’s higher base as well as the current external economic woes may take some steam out of the growth momentum moving into the second half of next year, analysts say.
“There is a lack of earnings drivers moving forward,” said OSK Investment Bank Bhd’s head of research Chris Eng. “We do not expect to see much earnings surprises going into 2011.” In fact, Eng said there were more downgrades and under-performers for the quarter.
The only sector that posted earnings surprises during the quarter was media, he added. Some of the surprises in the media sector for the quarter included the announcement of a special dividend comprising 47.9 sen per ordinary share by Star Publications (M) Bhd and the higher-than-expected quarterly earnings posted by Media Chinese International Ltd.
Nonetheless, Eng said some sectors such as banking and consumer goods are expected to post good earnings next year.
Hong Leong Group Research concurs. In a Nov 30 note to clients, the research house said the banking sector would be the best proxy to domestic economic growth. It pegged Malaysia’s gross domestic product growth at 7% and 5.5% in 2010 and 2011, respectively.
“With expectations of sustained private consumption (especially for food and beverage, and telecommunications) as one of the main pillars of GDP growth, the consumer goods and telecommunication sectors will also benefit,” it said. It added that air transportation was also expected to gain l as affluence rises.
Commenting on the palm oil sector, OSK’s Eng said plantation counters would only see the impact of the higher crude palm oil prices on their earnings in the first half of next year. Indeed, most plantation counters such as Sime Darby Bhd, IOI Corp Bhd and IJM Plantation Bhd posted results that were below expectations for 3Q.
In particular, Sime Darby’s plantations division chalked up the worst September quarter in comparison with its Malaysian or Indonesian peers. Meanwhile, a research head with a foreign research firm affirmed that earnings growth is likely to be weaker moving into the second half of next year due to a lack of future earnings drivers.
Echoing the view that plantation counters would only see the impact of higher CPO prices on earnings in the first half next year, he said: “This also indirectly implies that the palm oil players are likely to experience weaker earnings growth in the second half of 2011.”
CPO futures prices continued their uptrend on Bursa Malaysia Derivatives yesterday, reaching their highest levels in over two years. The February 2011 contract rose RM14 to RM3,500 per tonne.
On the other hand, most steel counters posted quite disappointing results for 3Q mostly due to margin squeeze. Among the few steel players that had actually written down their inventories were Choo Bee Metal Industries Bhd and CSC Steel Holdings Bhd.
“I think the 4Q would be the same or even worse,” an industry player told The Edge Financial Daily. “But it will not be as bad as 2008.”
He attributed the weaker results among local steel players to excess supply and the higher cost of raw materials. To make the matter worse, it was reported Wednesday that global iron ore giants Vale SA, BHP Billiton plc and Rio Tinto plc were likely to raise iron ore contract prices for 1Q2011 from the fourth quarter this year, reflecting gains in spot prices over the past three months.
Iron ore prices delivered to China rose to a six-month high of US$167.80 (RM528.57) per tonne on Dec 1, and are up 68% in the past 12 months. As such, steel players are bracing for higher prices in 1Q11.
Nonetheless, the industry source said the steel sector is expected to recover in the first half as the long list of infrastructure and development projects announced by the government starts to kick in. Global economic factors such China’s economy overheating and potential escalation of tension on the Korean peninsula may be dampening factors, but he said there will always be an opportunity within a crisis.
This article appeared in The Edge Financial Daily, December 3, 2010.
