COMPANIES listed on Bursa Malaysia have reported a better set of third quarter (Q3) earnings compared with those in the second quarter this year, with fewer reported earnings disappointments.
OSK Securities said there had been fewer companies reporting earnings that fell short of market expectations in the three-month period to Sept 30, compared with the preceding quarter to June 30.
In its research report, the brokerage house said of the 76 public listed companies tracked by the market and itself, 43% had reported worst-than-expected earnings, 32% within expectations, and other 25% reported better than expected results.
By comparison, a total of 44% of those companies had posted poor results, 33% in line with expectations, and 23% with better earnings during the second quarter.
The much improved performance from the Malaysian corporate sector basically reflects the strong Q3 GDP, which expanded by 6.8% year-on-year during the July-September quarter,'' OSK Securities said.
The brokerage said the total number of companies that either met or beat estimates had improved to 57%, which was one percentage point higher from the preceding quarter's score of 56%.
Commenting on individual sectors, OSK Securities said the banking sector had generally dismayed Q3.
It said sector-wise, banks annualised earnings were behind the market consensus by 16.3% and house forecasts by 12.6%.
OSK Securities attributed the fall in banks' earnings to higher overhead costs, and increases in loan loss provisioning.
On the other hand, the consumer sector was more resilient in terms of earnings, with tobacco and beverage companies reported earnings that were largely above market expectations and showed robust growth.
The main reason behind this was the stronger spending power by consumers, coupled with better economic sentiment that has led to higher business confidence,'' OSK Securities said.
However, the brokerage noted that tobacco and brewery companies earnings in Q3, which appeared strong, were somewhat distorted by pre-budget stocking activities.
On the telecommunications sector, OSK Securities said the sector provided the best of surprises with all three stocks - Telekom Malaysia Bhd, Maxis Communications Bhd and Digi.com Bhd - posting earnings that beat market expectations by between 11% and 23%.
As for the construction sector, OSK Securities said that except for IJM Corp Bhd, earnings in Road Builder (M) Holdings Bhd and PLUS Expressways Bhd were below consensus estimates in the 3Q.
On the gaming sector, the brokerage house remained positive on Resorts World Bhd and Genting Bhd, even though they reported slight decreases in Q3 net profits.
We see this as a hiccup to the Genting group and believe that the group is still on track for strong earnings growth going forward,'' OSK Securities said.
On number forecasting operations (NFO), it noted that Magnum Corp Bhd's 3Q earnings were worse than expected, as it was hit by a high prize payout ratio and investment losses amounting to about RM25.3mil.
In the motor sector, OSK Securities said auto companies Q3 results were generally better than the preceding quarter based on the 8% cumulative growth in the sectors earnings, which was very much in line with the 8.1% improvement in total new vehicles sales during the period.
Similarly, performance in the plantation sector was generally better on a cumulative basis due to higher crude palm oil (CPO) prices although production costs had also increased, particularly fertilizer costs.
Within the power sector, net earnings in that sector, excluding exceptional items, fell by almost 15% q-o-q although cumulative 9-months earnings still expanded by about 27%, thanks largely to the stronger performance from Tenaga Nasional Bhd.
Indeed the power sector has performed well in 2004, mainly driven by the continuous strong growth in electricity demand,'' OSK Securities said.
As for the property sector, OSK Securities said earnings tabulation of property companies under its coverage dipped by 5% year-to-date.
However, it noted that the figure was actually skewed by property giant, IOI Properties Bhd, which reported a 29.8% drop in earnings for the nine-month period to Sept 30.
Meanwhile, the technology sector had a mixed bag of earnings, with the sector registering growth of 8% for the first nine months of the year. OSK Securities said growth in the sector mainly came from Computers Systems Advisers (M) Bhd (CSA), as the company has started to bill the three major outsourcing contracts.
Semiconductor companies under our coverage enjoyed strong growth during the first nine months of the year.
However, their Q3 net profits came down sequentially, suggesting that the industry is heading into a consolidation phase,'' the researcj house said.
Based on performance in the Q3 reporting season, OSK Securities said it had upgraded fair values in 27 companies, compared to 21 upgrades in the preceding quarter, while downgrades were reduced to just 21 compared to 30 in the preceding quarter.