MCO brings mixed impact on Q2 corporate earnings

by BERNAMA/ pic by BERNAMA

THE Movement Control Order (MCO), which has been implemented since March 18, 2020 due to the COVID-19 pandemic, has brought huge impact on the domestic economy.

Among the most affected sectors is the corporate sector, of which the impact was mostly reflected in the companies’ financial results in the second quarter (Q2) of the 2020 calendar year (CY), regardless of their financial year end.

Several economists had earlier predicted that the full impact would be seen in Q2, which saw a sharp contraction in the country’s gross domestic product (GDP) as announced by Bank Negara Malaysia early this month.

Malaysia’s economy contracted 17.1 per cent in Q2 2020, the worst double-digit quarterly decline since 1998 due to the unprecedented lockdown imposed to stem the spread of COVID-19 that brought the economy to almost a complete standstill.

In the fourth quarter of 1998, Malaysia recorded a double-digit decline of 11.2 per cent, and a GDP growth of 4.9 per cent in Q2 2019.

Big Firms Performance in Q2

AirAsia Group Bhd, among the severely impacted companies during the period, saw its Q2 2020 revenue plunge by 96 per cent to RM119 million at the height of the pandemic as many countries announced lockdowns and border restrictions.

The company sank into the red in Q2 2020 with a net loss of RM992.89 million compared with a net profit of RM17.34 million in the same period previously.

Being in the aviation industry, 42 per cent of the low-cost carrier’s revenue was derived from cargo and logistics operations, while the group expenditure declined as the group hibernated its fleet at the end of the first quarter and gradually resumed operations at end of May and early June as domestic travel restrictions were eased.

Commenting on the results, Kenanga Investment Bank said over the medium term, AirAsia was expected to face tough operating environment, already derailed by widespread travel disruptions due to COVID-19 and hit by lower load factor.

“The group have applied for bank loans in their respective operating countries to shore up liquidity to help fund working capital and repayment of lease liabilities, which stand at RM12.2 billion as at June 30, 2020.

“In addition, AirAsia has ongoing deliberations with a number of parties for joint-ventures and collaborations that may result in additional third-party investments in specific segments of the group’s business,” it said.

One of Malaysia’s largest conglomerates, Sunway Bhd, has also reported lower revenue during the same period due to lower contributions from most business segments except property development, quarry and healthcare.

“The COVID-19 pandemic, the MCO and Conditional MCO (CMCO) since March 18, 2020 have caused significant disruptions and financial impact on the group, particularly the hospitality and leisure businesses under the group’s property investment segment which were not allowed to operate during these periods.

“Although most of the other businesses of the group have resumed operations during the conditional MCO, the anticipated business recovery will be challenging and dependent on the overall improvement of the economy,” it said in a filing to Bursa Malaysia recently.

Meanwhile, Perak-based United Plantation Bhd’s net profit leapt 63 per cent in the Q2 ended June 30, 2020 to RM123.59 million, as the group continued to boost crude palm oil (CPO) and palm kernel production amid better average selling prices compared with a year earlier.

Revenue also improved to RM294.32 million from RM270.53 million previously, the oil palm and coconut plantation group said in a filing with Bursa Malaysia last month.

The Q2 CY 2020 was a boon for most plantation companies as they reported outstanding financial performances due to the higher CPO price amid lower production season.

Their encouraging financial results came as economies reopened one-by-one during the April to June period after a few months of coronavirus lockdown, allowing countries especially traditional palm oil buyers like China and India to begin refurbishing their inventory.

In the retail industry, one of the major players, 7-Eleven Malaysia Holdings Bhd, reported a decline in revenue from convenience stores by RM78.2 million or 13.3 per cent in the Q2 ended June 30, 2020.

It said most product categories recorded lower revenue with the exception of tobacco which grew 22.7 per cent, resulting in lower gross margins and gross profits.

“The group’s performance in Q2 was affected by the COVID-19 pandemic as during MCO, stores in the malls were closed while others are operating under restricted hours. All our stores have since re-opened, however, they are still not allowed to operate 24 hours under the Recovery MCO guidelines,” it said.

Light at the end of the tunnel

Despite being heavily impacted in Q2, the economy is now on the path of recovery as the government began to allow more businesses and industry to operate as usual since the implementation of CMCO.

According to Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz, Malaysian economy has started to show green shoots since June 2020 with the gradual opening of businesses since May 4, 2020 after being battered by the COVID-19 pandemic.

In a interview with Bernama and TV3 recently, he said the brunt of the lockdown was felt in April 2020 when the GDP contracted by a whopping 28.6 per cent year-on-year (y-o-y).

“However in May 2020, it (GDP) was -19.5 per cent y-o-y and in June 2020, it was a small contraction of 3.2 per cent y-o-y, which was a sharp upswing as businesses had started operating.

“In cumulative, the second-quarter GDP dipped 17.1 per cent as the country went into lockdown with strong enforcement to stem the spread of the COVID-19 disease. We are seeing a V-shape recovery starting May 2020, (hence) June is a good barometer to show the economy is improving,” he said.

Based on the latest developments and indicators, MIDF Research expected the economy to improve on a gradual term as sentiments were still weak due to the uncertainty over COVID-19, with other downside risks emerging such as the political situation, rising protectionism and geopolitical tensions.

“Some countries are witnessing the resurgence of COVID-19 cases which caused them to reinstate lockdowns or retract plans to reopen. Domestically, the rise in COVID-19 is very localised thus far. However, fears of the adverse situation abroad being echoed in Malaysia is still present,” it said in a note.