PETALING JAYA: Corporate earnings for the final quarter of 2022 (4Q22) are expected to remain positive, underpinned by festive spending ahead of Christmas and Chinese New Year, more tourist arrivals as well as higher bank earnings from rate hikes, says CGS-CIMB Research.
In a review note, released yesterday on overall corporate third quarter earnings on Bursa Malaysia, the research house reported that out of the 136 companies it covered, 38% of them posted earnings that exceeded its expectations, up from the 33% for the quarter ended June 30.
However, the number of companies that missed CGS-CIMB Research’s forecast also edged up to 26% in 3Q22 compared with 24% for the second quarter of the year, which was in line with its “flattish” call on 3Q earnings.
The research house said: “We had foreseen the waning of the boost coming from high commodity prices, such as crude palm oil, and the tapering off of high consumer spending due to pent-up demand in the second quarter, which was accelerated by Hari Raya and the RM10,000 one-off Employees’ Provident Fund special withdrawal amounting to RM44bil in April 2022.”
This was offset by stronger quarter-on-quarter earnings from banks – which benefited from the overnight policy rate (OPR) hike, gaming companies – which profited from increased sales and earnings fromoverseas gaming subsidiaries, and utilities players such as Tenaga Nasional Bhd who recorded lower operating expenditure, it noted.
CGS-CIMB Research analyst Ivy Ng said earnings for 3Q22 climbed 9.2% year-on-year, partly due to the “low base” effect compared to the corresponding quarter of last year, as the country was in the early stages of a full movement control order, with the ban on interstate and overseas travels only being lifted from Oct 11, 2021.
“On a quarter-on-quarter basis, 3Q earnings also nudged 0.6% higher, supported by stronger earnings from banks, healthcare, shipping, travel as well as leisure and utilities,” she pointed out.
Meanwhile, the research house said sectors that outperformed expectations for the third quarter included the consumer, media, property, transport infrastructure and utilities sectors, with notable examples being Nestle Malaysia Bhd, Carlsberg Brewery Malaysia Bhd and Malaysia Airports Holdings Bhd.
Heading into 2023, CGS-CIMB Research said investors would likely be focusing on government policies to tackle high cost of living, the upcoming parliament sitting slated for Dec 19, and retabling of Budget 2023, which could take place in the first quarter.
Ng said the research house is also lowering its end-2022 target for the FBM KLCI to 1,558 points from its previous target of 1,602 to reflect new constituents on the index – AMMB Holdings Bhd and QL Resources Bhd will be replacing Top Glove Bhd and Hartalega Holdings Bhd, revised earning forecasts, and the lowering of price over earnings ratio valuations for the bourse.
Having said that, CGS-CIMB Research is projecting the FBM KLCI to edge higher to 1,619 points by the end of next year.
The research house’s top stock picks are MAHB, MR DIY Holdings Bhd and RHB Bank Bhd.