PETALING JAYA: As the country marks a year into the movement control order (MCO) that was first imposed in March 2020, corporate Malaysia has to an extent rebounded from the lows seen a year ago.
Earnings are picking up once again and some companies – apart from glove makers and semiconductor players – have posted a better bottomline than their pre-Covid-19 levels.
Based on data compiled by MIDF Research, the aggregate normalised net profit of FBM KLCI’s 30 constituents has hit RM15.38bil in the fourth quarter of 2020, marking a 21.6% year-on-year (y-o-y) increase from RM12.65bil in the fourth quarter of 2019.
While the biggest contribution of earnings came from the glove makers in the index, it is noteworthy that the quarterly earnings of FBM KLCI constituents in five other sectors were also higher than pre-pandemic levels.
The sectors are industrial products and services, plantation, utilities, telecommunication and media as well as transportation and logistics. They have all registered 13% to 59% y-o-y increase in net profit in the fourth quarter of 2020.
Apart from improved earnings performance, talk for mergers and acquisitions (M&As) are also increasing in the market, signalling an improvement in business confidence.
Although the number of M&A deals in the country may not be as high as in 2019, it is expected to pick up further this year.
Experts also said the M&A landscape could return to the pre-Covid 19 pandemic level in 2022.
The national economic recovery, as evident from a GDP contraction of just 1.7% in December as compared to a decline of 28.7% in April last year, has been a major reason for corporate Malaysia’s rebound.
MIDF Research head of research Imran Yassin Mohd Yusof believes corporate Malaysia has done well to weather the Covid-19 pandemic thus far, thanks to a number of factors such as government stimulus and the loan moratorium.
“Of course, this is not broad-based and dependent on the industry they are in.
“For example, the rubber glove and technology sectors have not only survived but thrived during current tough conditions.
“Conversely, those in the tourism and hospitality-related industries continue to face challenges, ” he told StarBiz.
Imran said corporate Malaysia is on its path to recovery, in tandem with the economic recovery expected this year and the ongoing vaccination programme nationwide.
“Having said that, we do not expect earnings for the overall corporate Malaysia will go back to pre-pandemic level just yet.
“It may take another year before we could observe this and it is dependent on the pace of the vaccination programme and economic recovery, ” he said.
Meanwhile, Minority Shareholders Watch Group (MSWG) chief executive officer Devanesan Evanson said companies will continue to feel the impact of the Covid-19-induced crisis until all movement control orders have been uplifted and life returns to normal or near normal.
“Even when things return to near normal, there will be a start-up period before the companies can be up and running, ” he said.
According to Devanesan, the companies that have managed the crisis well were those that adapted quickly to the online business model as consumers preferred to stay at home and do their purchases online.
“Other public listed companies that did well were those that were at the right place at the right time.
“The health sector comprising the gloves, pharmaceutical and personal protection equipment-related companies were in the right place at the right time.
“Likewise, to a lesser extent, the information technology (IT)-related companies fared well due to the work-from-home phenomenon, which created demand for laptops, accessories and other IT gadgets, ” he said.
However, Devanesan pointed out that the balance sheet and cash holdings of most companies are still weak as there is a substantial reduction in business due to the movement control orders.
“Companies seek to exist with the bare minimum awaiting for a new dawn. Cash conservation is the order of the day due to the future uncertainties.
“This, of course, has resulted in no, or lower, dividend payouts which in turn has put no, or lesser, money in the pockets of minority shareholders, ” he said.
Independent research firm Trident Analytics founder and chief research officer Peter Lim Tze Cheng said that companies with a strong balance sheet have fared better in weathering the Covid-19 crisis.
“Take Padini Holdings Bhd for example. As a retailer, it was affected by the movement restrictions but it managed to sustain its operations because of its strong balance sheet.
“Similar goes to SLP Resources Bhd and Hong Leong Industries Bhd. The ability to weather a crisis, regardless of the sector one operates in, lies in the balance sheet on how you manage your debts and cash, ” he said.
When asked whether companies are more willing to expand a year after the virus outbreak, Lim said it largely depends on how fast the economy recovers.
“It’s pretty much driven by market demand, ” he said.
MIDF Research’s Imran noted that while demand remains fragile, it is on a gradual recovery path, which bodes well for corporate Malaysia.
“Having said that, we expect that once the economic recovery gathers pace, corporate Malaysia will find support from the financial system (via lending and fundraising activities), given the ample liquidity in the system.
“Therefore, the question will be on the sustainability of those businesses in order to receive this support for any business expansion, ” he said.