MALAYSIAN corporate earnings, after having taken a hit in the second quarter, are expected to turn around in the second half this year in line with the improving economic outlook, analysts said.
Although second-quarter results are not due to be announced till end-August, research houses generally expect the Severe Acute Respiratory Syndrome (SARS) outbreak to take its toll on profits of many companies. However, they expect the picture to brighten in the remaining months of the year, with reported profits in the second half-year substantially better than the first.
Gan Kim Khoon, executive director of AmResearch Sdn Bhd, which last month revised downwards its earnings forecast for Malaysian corporations by 3.8% for the year and 4.3% for 2004, said although profits disappointed in the first quarter and would likely remain weak in the second, they look relatively strong for the second half of the year.
In its latest report, AmResearch said earnings would grow 11.4% for full-year 2003, and accelerate by a further 13.8% next year.
The expectation of higher profits as a result of an increasingly optimistic outlook for the economy has been cited as a catalyst for the recent rapid rise in the stock prices on the KLSE.
KAF Research Sdn Bhd director Lucy Ng said although she would not be revising upwards her earnings forecast for the year after her firm recently revised the figures downwards due to SARS, she agreed that profits would likely improve in the second half of the year.
AmResearch has found that nearly four in 10 companies reported below consensus expectation earnings for the first quarter, whereas only 22% posted earnings that were above expectations. It said only three sectors gaming, telecommunications and transportation reported above-expectation earnings while seven, including banking and construction, failed to meet analysts forecasts.
Gan said that overall sentiment appeared to have improved sharply in the early days of the second half. This was reinforced by factors such as excess liquidity in the market, lower interest rates and a rebound in the global markets.
In the coming weeks and months, there should be more clarity in economic and corporate performances, especially with data and earnings no longer skewed by global uncertainties and SARS, he added.
On the performance of the market, Gan said his company's target for the KLSE Composite Index of 780, now no longer looks unachievable. On the contrary, he said, the target could likely be surpassed, especially if the current buying momentum was sustained.
However, at 780, the markets forward price-earnings ratio would be 16.6 times for 2003 and 14.8 times for 2004, not the cheapest among emerging markets, he said.
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