EVEN before the coronavirus (Covid-19) came into play, there has been nothing much to shout about in terms of corporate earnings.
In fact, between 2015 and 2019, the earnings of listed companies in Malaysia have declined by 5.4%.
It is so disappointing to the point that Bursa Malaysia actually had to say it is something that needs to be addressed as it is important for public-listed companies (PLCs) to continue performing.
But to be fair, the global economy has not been faring that well either over the past few years with the ever-changing dynamics of global trade due to the escalating trade tensions between the United States and China and also Brexit.
There was also the oil price rout from 2014 to 2016 which the oil and gas sector has yet to fully recover from.
And as far as 2020 is concerned, it goes without saying that another round of earnings disappointment is expected, definitely the worst in recent years.
How can it not be when there was a complete shutdown for most businesses for 48 out of the 366 days this year?
That is 13.1% of the entire year spent with zero operations and even with the relaxation of the movement control order (MCO), not all businesses were at 100% capacity, at least until the recovery MCO since June 10.
While some businesses may resort to overtime to catch up on the progress lost over the two to three months period, the demand is simply not there.
As of yesterday noon, 62% of the counters listed on Bursa Malaysia were trading at discounts to their net tangible assets and while there are many reasons why, it is, as Khazanah Nasional Bhd’s managing director Datuk Shahril Ridza Ridzuan pointed out recently, because the return on equities do not support the valuations.
“We need to drive returns and profitability and if that means making hard decisions for your strategies and operations, we should do so.
“That’s really important to shareholders. Let’s focus on that and fix it, ” he said during a panel discussion at the first series of the Invest Malaysia 2020 recently.
As the pandemic continues to trample the economy, Bursa Malaysia chairman Tan Sri Abdul Wahid Omar rightly highlighted during the same function that moving forward with the status quo seems somewhat inconceivable.
He suggested re-looking and possibly replicating past successes such as the government-linked company (GLC) Transformation Programme, which saw 17 GLCs grew 10.2% per annum from RM9.9bil to RM26.2bil over the 11-year period of the programme, which ended in 2015.
Other than the giants like Malayan Banking Bhd, CIMB Group Holdings Bhd and Sime Darby Bhd to name a few, GLCs generally do not perform as well as their industry peers and the subpar earnings is what Shahril attributes to the lack of focus of what is really important to shareholders.
“I think we need to separate out some of the political messaging away from what’s really vital for a capital market to perform and for shareholders to get their returns.
“And that’s really about what’s really good for shareholders and for workers of the company as opposed to unnecessarily confusing them with other messages, ” he said during the panel discussion.
But GLCs and politics go so hand-in-hand that it would be common for those in GLCs to ponder the political implications in their companies every time there is a change in government.
Employees in certain GLCs would have been serving under three different bosses in a span of three years following the change from Barisan Nasional to Pakatan Harapan in 2018 and then from Pakatan to Perikatan Nasional in March this year.
To what extent this would affect the direction and strategy of the GLCs remains a question.
It is a known fact that Shahril is not a fan of the concept of GLCs and golden shares, having spoken against it previously as he preferred companies to be defined by their roles rather than ownership and to ensure that they are able to compete with other companies on a level playing field.
Also in the same panel, Shahril’s successor at the Employees Provident Fund, Tunku Alizakri Alias, says there are both strengths and challenges when it comes to GLCs, and the strength is when the company knows it has the backing of the government to ensure they will achieve the country’s agenda.
But the challenges will come when the GLCs have the wrong mindset of having the protection by the big brother that is the government and in that sense, have the mentality that whatever they do will never be wrong, on top of not taking chances and risks for the company.
“We’ve seen companies like Maybank becoming a regional champion across South-East Asia and Asia-Pacific and we’ve got a global champion like AirAsia, which has a very strong brand name.
“Malaysian companies can do it and I think we should start moving beyond this definition of GLCs and be called corporate Malaysia, be called world champions. That’s the challenge moving forward, ” he said.
Did you find this article insightful?