PETALING JAYA: The corporate results for the second quarter (Q2) is set to be the worst the market has ever seen, with companies taking in the full impact of the pandemic due to the movement control order (MCO), but the market has already discounted it.
An analyst said the focus would now be on the third quarter where corporates are expected to see a rebound in their earnings.
The rate at which the results rebound would also provide an initial preview of how corporates will fare in 2021.
“It goes without saying that the second quarter results are going to be bad. Everyone is already expecting that and it has been priced in, ” he said.
Except for sectors that have benefited from the coronavirus (Covid-19) such as the rubber glove and healthcare-related sectors and those in the business of essential services, it would be a challenge for the companies to remain in the black during the second quarter, he added.
The analyst said those that have recorded losses in Q1 could potentially see their losses widening with the MCO occupying the whole month of April and the first four days of May before the government implemented some relaxations in the form of a conditional MCO.
“We’re expecting the situation to improve as we move on to the second half of the year. We have to understand that the state of the economy that we’re facing now is due to the MCO and the lockdowns in other countries, unlike what happened during the Asian Financial Crisis or the subprime mortgage crisis in the United States, ” he said, adding that the market is forward looking and has already priced in the optimism in Q3, moving into 2021.
He also said that investors have been looking beyond 2020 and are projecting how the rebound next year would be like as the results for most corporates this year would not be anywhere close to their financial year 2019 (FY19) figures.
CGS-CIMB Research said in a strategy note that the rally in the equity market suggested that investors were positive on the gradual reopening of the economy and were pricing in expectations of a significant recovery in corporate earnings in the second half of 2020, on the back of a low number of new Covid-19 cases.
The research house said only four sectors recorded positive month-on-month (m-o-m) gains in June namely technology (up 4.8% m-o-m), finance (up 1.8% m-o-m), healthcare (up 1.8% m-o-m) and real estate investment trust (up 0.2% m-o-m), as investors remained invested in the glove sector on potential earnings upside from better pricing power and piled into technology on recovery theme and higher capex spend on IT post Covid-19.
The worst-performing sectors were telecommunication (down 8.6% m-o-m), utilities (down 4.8% m-o-m) and construction (down 4.5% m-o-m) as investors took profit from the recent gains.
BIMB Securities Research said in its market strategy report that earnings are projected to recover in 2021.
“A key reason the stock market rallying sharply since Q1 is due to anticipation of both earnings and economic recoveries next year.
“Our earnings forecast for the FBM KLCI remains at 16% (growth) year-on-year for 2021, ” it said, adding that it preferred the healthcare, technology and economic-sensitive sectors.
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