Corporate Malaysia - 14th consecutive quarters of disappointing earnings but market still charge ahead??

PETALING JAYA - Corporate Malaysia delivered one of its worst results season for the second quarter with earnings falling 12.4% quarter-on-quarter and 5.7% from a year ago.

The showing marks the fourteenth consecutive quarter of disappointing numbers.

The top 30 companies on Bursa Malaysia reported a 12.4% decline in net profit of RM14.84 billion in the three months ended June 30 2014, with growth figures were impacted by extraordinary items.

"The sequential growth number was dampened principally due to the high-base effect from an RM1.83 billion gain on demerger/disposal of IOI Corporation Bhd's property business in Q1'2014.

"Similarly, the year-on-year growth number was lowered due to the effect of Petronas Gas Bhd's RM591.6 million deferred tax assets, Sime Darby Bhd's RM340 million disposal of healthcare unit, and Tenaga Nasional Bhd's (TNB) RM324.7 million forex translation in Q2'2013," MIDF Research's head of equity Syed Mohammed Kifni said in a report yesterday.

However, after deducting the relevant exceptional items, the adjusted sequential growth figure in Q2 showed a lower decline of 1.8% and the on-year growth figure actually turned positive to 2.5% year-on-year.

"The aggregate earnings and growth figures for Q2'2014 nevertheless came in below expectations," he said.

Syed Mohammedi n his previous report had anticipated aggregate earnings of RM15.84 billion, sequential adjusted growth figures of 4.9% quarter-on-quarter, and on-year adjusted growth figures of 9.4% year-on-year.

MIDF made eight changes to its stock recommendations with four upgrades and four downgrades during the quarter. In addition, target price changes involved 15 upward adjustments against 27 downward adjustments.

Overall, 27% of stocks under MIDF coverage reported lower-than-expected earnings, the highest since Q3'CY13, from 17% in the preceding quarter. Of the rest, 9% posted earnings that were better than expected versus 64% which came in within expectations.

He noted that the construction, semiconductor and healthcare were among the sectors which recorded higher total earnings in Q2'2014 when compared to the corresponding period last year.

On the other hand, sectors such as telecommunication, transport and automotive were among those that showed negative on-year earnings growth percentage in the quarter under review.

Among the FBM KLCI constituents under his coverage, Sime Darby was the only company that reported better than expected earnings. On the contrary, there were eight earnings underperformers, namely AMMB Holdings Bhd, Axiata Group Bhd, CIMB Group Holdings Bhd, Felda Global Ventures Holdings Bhd (FGV), IHH Healthcare Bhd, Kuala Lumpur Kepong Bhd, Petronas Chemicals Bhd and UMW Holdings Bhd.

He maintained his full-year earnings projection for the FBM KL Composite Index (FBMKLCI) constituents of 1,900 points with the upper and lower bounds at 1,980 points and 1,840 points respectively.

Consequently, MIDF Research lowered the aggregate earnings estimates of the 23 stocks under its coverage by 2% to RM53.33 billion in 2014 and 3% to RM56.33 billion in 2015.

At the same time , MIDF Research has adjusted the aggregate earnings estimates of stocks under its universe down by 3.3% to RM67.96 billion in 2014 and 3.4% to RM73.98 billion in 2015. -Sundaily