THE earnings picture for most government-linked companies (GLCs) may appear a little clouded amid the current tough business environment, but the lack of any sign of improvement in earnings is no cause for worry, Avenue Securities Sdn Bhd said.
The research house said the recent quarterly results of many GLCs had come in below market expectations while some even registered “disappointing'' numbers.
It said the consensus earnings estimates of most public-listed GLCs over the next two financial years had not been upgraded in the past 12 months.
In fact, some of the companies, like Malaysia Airlines, Telekom Malaysia Bhd and Proton Holdings Bhd, had received earnings downgrades, Avenue added.
Nonetheless, most GLC stocks have experienced strong price performance over the past 18 months, which the research house attributes to “the hype of potential corporate restructuring, which could lead to higher operating efficiency, hence stronger earnings growth.''
“So far, we reckon that investors have put little emphasis on the financial performance or operating efficiency of the GLCs, but were focusing more on the potential restructuring proposal that could turn around the companies,” it added.
The GLC Transformation Programme, launched by the Government in 2004, is a 10-year one implemented in four phases.
Following the launch in July of its second phase which ends in December 2006, GLCs are expected to make the necessary earnings improvements in order to show tangible results in 2007.
Avenue considers the GLCs that have shown “meaningful'' earnings improvement this year to be the “early birds”.
“At this juncture, we feel it is still premature for us to conclude whether most GLCs could deliver the required numbers for 2007 (or not), given the current tougher business environment,” the local brokerage added.
It said investors could pick companies that had showed earnings improvement this year, or had received positive earnings upgrade for financial years 2006 or 2007, or both, but whose share prices were lagging behind.
These stocks include Tenaga Nasional Bhd, Bintulu Port Holdings Bhd, Pos Malaysia & Services Holdings Bhd, Sime Darby Bhd, Bumiputra-Commerce Holdings Bhd, VADS Bhd, MISC Bhd and Malaysia Airports Holdings Bhd.
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