Market watchers expect the corporate results for the quarter to not augur well for the local bourse

By DASHVEENJIT KAUR / Pic By TMR

The recent corporate earnings season’s offering has little to cheer about. Results for the July-September quarter by major companies have been rather disappointing with most major companies missing market expectations.

Market watchers expect the unexciting corporate results for the quarter to not augur well for the local bourse, at least for the next few months, especially in the absence of fresh catalysts.

Results have been fairly disappointing across most sectors, with only the banking sector showing a glimpse of hope in earnings.

Many government-linked companies (GLCs) recorded a net loss for the quarter compared to a year ago, largely dragged by unexpected provisions, lower revenues, higher financial charges and absence of exceptional gains. Here are the major corporate disappointments among the GLCs.

FGV — The Biggest Surprise

Palm oil giant FGV Holdings Bhd posted its second consecutive quarterly loss, dragged by declining crude palm oil (CPO) prices and impairment charges.

For its third quarter ended Sept 30, 2018 (3Q18), the group posted a net loss of RM849.26 million compared to a net profit of RM41.5 million a year earlier.

FGV attributed its loss to the CPO prices, falling to its lowest in three years.

Quarterly revenue declined 22.8% quarter-on-quarter (QoQ) to RM3.2 billion from RM4.14 billion previously.

Its earnings were below consensus expectations.

MIDF Amanah Investment Bank Bhd in a note last Friday said FGV’s core net loss is worse than expected.

“Previously, we were expecting a RM73 million core net loss for the full financial year, while consensus was expecting a core net profit of RM33 million,” it said.

The research firm now is expecting worse with a 2018 financial year (FY18) core net loss of RM97 million, which was previously at RM73 million.

“FY19 core earnings have also been reduced to RM33 million from RM74 million,” it added.

TM

The GLC has announced its first quarterly net loss in 10 years. The national telecommunications giant made a net loss of RM175.6 million in the three-month period ended Sept 30, 2018, largely due to a massive RM935 million impairment charge on its network assets recognised during the quarter.

This compared to a net profit of RM211.9 million that the group registered in the corresponding period last year.

For the cumulative nine-month period ended Sept 30, 2018 (9M18), Telekom Malaysia Bhd (TM) reported an 87.2% drop in net profit to RM83.49 million from RM652.73 million in the same period last year.

Revenue for 3Q18 saw a flat growth of 0.2% to RM2.95 billion from RM2.94 billion and for 9M18, declined by 1.7% to RM8.73 billion from RM8.89 billion.

TM said this was mainly due to lower revenue from voice and data services, whereby its data service was affected by the provision made on the estimated impact of regulatory mandated access pricing.

Analysts, however, reckon that earnings were within expectations excluding the major one-off impairment amounted to RM995 million.

Hong Leong Investment Bank Bhd (HLIB) in a traders note stated that TM’s 9M18 revenue of RM8.7 billion translated into a stronger than expected core net profit of RM528 million, accounting for 87% and 88% of HLIB’s and consensus’ full-year forecasts respectively.

HLIB said the main culprit was stronger than expected earnings before interest, taxes, depreciation and amortisation margin.

BIMB Securities Sdn Bhd believes that the GLC is embarking on a kitchen-sinking process.

“Headline profit after tax and minority interest was severely hit by impairment on recoverable value of network assets amounting to RM1 billion amid continued pressure from the challenging market.

“Excluding this, 3Q18 core earnings advanced 31% year-on-year and 71% QoQ to propel 9M18 core earnings ahead of ours and consensus’ estimates at 86% and 91% respectively,” BIMB said in a note last Tuesday.

The challenge for TM is to recover from the around RM14 billion drop in market capitalisation and restore confidence among investors.

Axiata

Another telecom giant, Axiata Group Bhd, swung to a 45% drop in net profit to RM132.07 million in 3Q18 against RM238.53 million a year ago, largely on higher unrealised foreign- exchange (forex) loss on US dollar- denominated loans and finance costs.

Earnings per share for the quarter dropped to 1.5 sen, from 2.7 sen in 3Q17.

Revenue slipped 3.2% to RM6 billion from RM6.2 billion. The ringgit’s strengthening against other regional currencies led to an adverse forex translation impact on the group’s headline performance.

Maybank Investment Bank Bhd (Maybank IB), however, believes Axiata is on the path to its recovery, and upgraded its call to ‘Buy’ on the stock.

“Axiata’s 9M18 results were slightly below our expectation despite 3Q18 earnings having reco-vered sequentially.

“With most op-cos pointing to improving outlooks, we believe Axiata’s earnings are unlikely to collapse in the coming quarters,” Maybank IB said in a note last Wednesday.

Sime Darby Plantation

Sime Darby Plantation Bhd nearly lost all of its profits in the 2Q18 partly due to lower palm oil prices.

Its profit in 1Q18 ended Sept 30, 2018, slumped 89% due to lower palm prices and reduced margins.

Profit for the July-September period fell to RM115 million from RM1.02 billion a year earlier.

The drop was largely due to a 58% decrease from its upstream business.

The unaudited result showed the drop in upstream business for Malaysia to RM125 million compared to RM304 million, Indonesia to RM63 million from RM117 million, and Papua New Guinea to RM30 million from RM38 million.

Upstream Malaysia registered a profit before interest and tax of RM125 million in the period under review, which represents a decrease of 59% against the corresponding period of the previous year.

This was mainly due to the impact of lower average CPO and palm kernel realised prices, which declined by 19% and 18% respectively, and lower fresh fruit bunch production.

Its upstream business in Liberia continued to register losses of RM18 million in the period under review, lower than the RM23 million loss reported in the corresponding period,

PetDag

The subsidiary of state-owned oil company Petroliam Nasional Bhd (Petronas) also registered a net profit of half of its earnings registered a year ago.

Petronas Dagangan Bhd’s (PetDag) net profit fell 65% to RM270.27 million in its 3Q18 from RM761.73 million a year ago, despite higher revenue. But the drop was contributed the absence of exceptional gains of RM424.6 million recorded a year earlier.

PetDag said lower sales volume and higher operating expenses also contributed to the weaker 3Q18 net profit.

Kenanga Research, however, said it is making no changes to its FY18F earnings estimate as it expects PetDag to meet the earnings projection for the year.