PETALING JAYA: Corporate earnings got off to a mixed start in 2021, but on the bright side, the overall market performance confirmed that the worst is over.
Positive earnings surprises in the first quarter of 2021 mostly came from sectors such as banking, building materials and plantation, according to analysts. Technology and glove manufacturing players continued to report robust earnings.
On the other hand, earnings disappointment came from the construction, gaming and aviation sectors, among several others.
Looking ahead, some analysts have cut their earnings forecasts for 2021, considering the ongoing market uncertainty and the recently-announced lockdown measures.
TA Securities Research revised downward its 2021 aggregate earnings forecast by 1.7%, post-first quarter results season.
However, it raised the aggregate earnings forecast for 2022 by 1.3%.
“The first-quarter 2021 results were within expectations, with core earnings of stocks under coverage increasing by 3.9% quarter-on-quarter (q-o-q) and 41.1% year-on-year (y-o-y) due to strong profit growth in glove companies.
“We expect earnings of stocks under our coverage to surge by 47.6% in 2021, before tapering off to 3.1% in 2022 due to higher base effect and contraction in glove company earnings as the average selling prices begin to normalise, ” TA Securities Research said in a note.
UOB Kay Hian Malaysia Research also reduced the 2021 earnings forecast of its coverage universe by 3.6%.
The earnings forecast for FBM KLCI was also cut by 2.4%.
“Forecast cuts were mainly in the gaming, construction and real estate investment trust sectors (mainly to reflect an extended and stricter lockdown period).
“Eleven of the 27 sectors or sub-sectors under our coverage suffered 2021 earnings forecast downgrades, ” it said.
The research house believes that stocks related to reopening play will regain the limelight by the end of third-quarter 2021.
This is when the country is expected to attain a good vaccination threshold, which would put it on course for herd immunity by the first quarter of 2022.
UOB Kay Hian Malaysia Research said it is adopting more defensive top picks and is looking to add prominent reopening plays closer to the fourth quarter of 2021.
“Key reopening beneficiaries will outperform as we head close to herd immunity, or when new Covid-19 cases plunge.
“These include the aviation, gaming and metal-based companies, ” it added.
Meanwhile, MIDF Research said the aggregate adjusted earnings of FBM KLCI catapulted to the highest level on record in the first quarter of 2021.
On an adjusted basis, the aggregate normalised earnings of FBM KLCI’s 30 constituents in first-quarter 2021 grew at 25.4% q-o-q and 70.6% y-o-y to RM19.4bil.
MIDF Research said the “stellar achievement” was engendered mainly by the massive growth in the bottomline of glove companies, which benefited from the Covid-19 pandemic.
“In reaction, the consensus 2021 earnings forecast for the FBM KLCI firmed up further to 119.4 points, ” it added.
However, the research house also noted that the market consensus projected a 5.2% y-o-y lower earnings at 113.2 points in 2022.
This was mainly due to the anticipated normalisation of glove stocks’ earnings.
PublicInvest Research said the longer-term cyclical recovery plays such as banking, oil and gas as well as construction appear to be delayed for now, given the new lockdown measures that have hit near-term operations and earnings prospects.
“Longer-term earnings are now subject to the length and severity of this lockdown.
“At this point, we retain our ‘overweight’ stance on the manufacturing, technology, consumer, oil and gas, gaming and rubber glove sectors.
“The market remains a trading-oriented one with volatile swings to be expected, ” it said.