MCO 2.0 has less severe impact on Q1 earnings

According to TA Securities head of research Kaladher Govindan, (pic) the earnings of companies related to the healthcare business will remain as a sure winner due to the continued high demand for gloves as well as the elevated average selling prices.

PETALING JAYA: The corporate earnings results in the first quarter of this financial year (Q1FY21) may witness less severe impact amid the current movement control order (MCO 2.0) period with a likely single-digit contraction, say analysts.

This is given that more sectors of the economy are now allowed to operate their business as usual compared with the previous stricter MCO in Q1 and Q2 last year.

The five essential sectors included manufacturing, construction, services, trade and distribution, and the plantations and commodities industries.

According to TA Securities head of research Kaladher Govindan, (pic) the earnings of companies related to the healthcare business will remain as a sure winner due to the continued high demand for gloves as well as the elevated average selling prices.

Companies linked to the oil and gas, and plantation are expected perform well and reap the benefits from the much higher crude oil and crude palm oil (CPO) prices.

On the other hand, companies in the gaming and transportation businesses will remain as the most affected sectors as the borders remain closed amid the widespread of the Covid-19 pandemic.

While the technology sector should display better earnings in Q1FY21, Kaladher told StarBiz that “there could be some drag following the strengthening of the ringgit against the US dollar.”

“However, the greenback will slowly recover in the coming months with the changing of guard in the United States.”

In addition, the usual Chinese New Year festive spending is expected to slow down this year.

This will affect the consumer sector, particularly in the retail sub-sector and the brewery sector where the impact could be most glaring, added Kaladher.

He noted that the revenue and core profit of stocks under TA Securities coverage in Q1FY20 dipped 5.1% and 25.8% year-on-year (y-o-y) respectively amid the Covid-19 pandemic.

“The full impact of Covid-19 was more severe during Q2FY20 for our stocks under radar with revenue down by 20.9% and core profit easing 55% y-o-y, ” Kaladher pointed out.

Meanwhile, Rakuten Trade Research vice- president Vincent Lau (pic below) concurred that corporate earnings would be less severely impacted by the MCO 2.0 in Q1FY21 compared with the first MCO in March last year.

This is given that more companies and industries have been classified under the essential sectors, which allow them to continue to operate.

“The government seems better prepared to deal with the second round of MCO given the lesson learnt during the first MCO.

“I believe that Malaysia is now in a better position to handle the MCO 2.0.

“Many people are drawing parallels between the current MCO to the one that we had in March last year.

“But this time round, the higher prices of commodities such as oil and CPO could translate into a better outlook for the government’s revenue, ” he added.

On the flip side, Lau opined that the economic recovery which many people are anticipating could be delayed this year.