By Ranjit Singh

ANALYSTS have mixed expectations on corporate results for the 4QFY19 reporting season which are expected to trickle in by early February.

Corporate earnings have been on the decline for the most part of 2019. Phillip Mutual Bhd chief strategist Phua Lee Kerk tells FocusM that there would be no negative surprises nor any major improvements in the quarter’s corporate earnings.

“We expect the ‘goodwill’  from the signing of the Phase 1 trade agreement between the US and China in December 2019 to be beneficial to corporate earnings. However, this will only manifest in 2QFY20 and 3QFY20. 

“We expect no major shocks to corporate earnings for 4QFY20 but the positive effects of the trade truce would only be felt much later. Since the signing, there has been a positive uptick in global trade and this should be good for Malaysian corporates,” he says.

As it is, the FBM KLCI has declined more than 6% in 2019 and was the worst performing market in Asia. Foreign investors pulled out more than RM10 bil from the market last year.

Investors were spooked by the constant flip-flopping by the government when dealing with economic policies. Lack of clarity on economic policies also did not help with assuaging investors on the merits of investing in the FBM KLCI.

Better results for plantation companies

A head of research anticipates that certain sectors would report stronger earnings for 4QFY19. For instance, crude palm oil (CPO) prices which began moving north since September 2019, would result in better earnings for plantation companies.

“However, many plantation companies did not manage to raise their fresh fruit bunch (FFB) production fast enough to avail themselves of the higher CPO prices and as a result the effects on their earnings would be marginal,” he says.

The oil & gas (O&G) sector has also seen somewhat of a revival with support services companies benefiting from more work from Petronas. Brent oil prices which have consistently stayed above US$60 per barrel have ensured a steady flow of jobs for these support companies.

“We expect the O&G sector to deliver a commendable performance for the 4QFY19 earnings season,” he adds.

However, the banking sector is expected to post low single-digit growth in earnings for the quarter. The tepid performance of the banking sector which represents 30% of the FBM KLCI would ensure that the upside of the index would be limited.

According to the head of research, telcos are expected to post modest results in 4QFY19 as the competition has been very stiff to sustain their businesses. They will also need to set aside large capex requirements to bid for the 5G spectrum and upgrade their infrastructure in the later part of 2020.

On the other hand, technology companies may surprise on the upside in earnings for 4QFY19 as the semiconductor cycle bottomed out in the final part of 2019 and this may boost demand for chips and other devices resulting in better earnings for the sector.

4QFY19 would probably be a non- event as far as earnings are concerned but better corporate earnings are on the horizon for the later part of 2020. This is mainly due to higher volume of global trade as US-China trade tensions ease. The uptick in global trade would ensure better sentiment for the Malaysian corporate sector. – Jan 15, 2020


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