PETALING JAYA: Malaysian corporations are expected to see a rebound in earnings, especially in the second half of the year as the national vaccination programme intensifies.
Fund managers expect the corporate earnings recovery to be supported by a broad base of industries including banking, consumers, manufacturers, oil and gas (O&G) as well as logistics due the pent-up demand with the opening of more economies.
UOB Asset Management (M) Bhd chief investment officer Francis Eng (pic) said the economy has seen the worst impact of the Covid-19 pandemic and the commencement of the vaccination programme has put the economy on the path to normalcy.
“Investors will be looking forward to the first quarter of 2021 reporting season to get a better assessment of the negative impact of the second movement control order (MCO 2.0), ” he told StarBiz.
Eng expected the first quarter corporate earnings to be affected by MCO 2.0, but they would pick up soon.
“With the vaccinations, the reopening sectors are expected to fare better. The major reopening sectors include financial, consumer and retail.
“Businesses were disrupted by movement restrictions, but they would be beneficiaries when the economy reopens.
“We also believe that some of the companies in the technology/industrial sector would benefit from secular demand growth and trade diversion, ” he added.
Areca Capital CEO Danny Wong (pic below) said many companies, especially those in the technology sector, have reported earnings that were “above expectations” in the fourth quarter of 2020.For 2021, he expected corporate earnings growth to be supported by a broad base of industries including exporters and logistics and this would be driven by the recovery in consumer demand as more countries are opening their borders.
“We think that corporate earnings growth would pick up in the third quarter especially in the banking, utilities and consumer sectors as the vaccination programme intensifies, ” he said.
For the technology sector, Wong expected the industry to continue seeing strong earnings, led by factors such as the 5G network deployment, automotive/electric vehicles, and Internet of Things.
“The technology industry is undergoing a structural change for the next three to five years. We expect their sales and margins to increase accordingly that will support its valuation, ” he said.
Some of the technology stocks on Bursa Malaysia are trading at a price-earnings ratio (PER) of more than 100 times.
In a report, AmInvestment Bank Research said the FBM KLCI component stocks delivered a set of fourth quarter 2020 (Q4’20) results that was fairly consistent with the previous quarter, as the market seemed to have come to grips with the impact of the pandemic on corporate earnings.
“The Q4’20 results were generally resilient with 33%, 58% and 8% beating, meeting and missing our projections respectively.
“This was comparable with 33%, 54% and 13% for ‘above’, ‘within’ and ‘below’, respectively, in Q3’20, ” it said in a report yesterday.
The research house said that the recovery-focused investment theme from end-2020 would extend well into this year.
“Investors will continue to accumulate recovery plays, especially fundamentally strong names in the banking, power, O&G, consumer, REIT and transport sectors, while lightening their positions in pandemic plays such as glove makers and selected excessively priced technology names, ” the research firm said.
Interestingly, Areca’s Wong remained bullish on the long-term growth of the glove sector despite the sell down of glove stocks.
“Rubber gloves will continue to sell post Covid-19 and we expect the volume could be higher as compared to pre-Covid-19 due to hygiene awareness globally, ” he said.
Rakuten Trade equity sales head Vincent Lau said more than 60% of Malaysian corporates reported earnings above consensus estimates.“We expect this momentum to continue this year driven by all sectors including banking, consumers and O&G, ” he said.
Earlier, Rakuten Trade had raised its corporate earnings recovery estimates for 2021 to 38.7%, from 35.3% previously.
It expected the FBM KLCI to end the year at 1,870 points, driven by a sharp recovery in corporate earnings and higher participation of foreign investors.
A research head pointed out that although foreign investors have been net sellers of Malaysian equities over the last two months, their participation have picked up.
“Over the last week, we are seeing more money coming into the local stock market from overseas, but the trading period is shorter.”
According to data by MIDF Research, for the week ended Feb 26, retail investors, foreign investors and local institutions recorded a weekly increase of 0.43%, 8.42% and 48.83% in average daily trade value, respectively.