The research noted that 2021 earnings grew 54.5%, bouncing back strongly from the 18.1% contraction in 2020
By HARIZAH KAMEL / Pic By MUHD AMIN NAHARUL
THE fourth quarter of 2020 (4Q20) earnings reporting season all but confirms that the worst may be over as about 70% of companies on the local bourse either meet or beat earnings expectations, noted Public Investment Bank Bhd (PublicInvest).
The research firm noted that 2021 earnings grew 54.5%, bouncing back strongly from the 18.1% contraction in 2020, though very much driven by turnaround in gaming-based earnings, and still-supernormal profits from the glove-based components.
“Be that as it may, the cumulative earnings basket is the highest in the last six years, an encouraging note, suggesting that expectations of market improvements remain robust,” it said in a note yesterday.
The report added that the longer-term cyclical recovery plays (on stronger economic growth and gradual return to normalcy) on the banking, oil and gas (O&G), and the construction sector.
Recovery in earnings was seen in 3Q20.
“Surprises were not a result of pessimistic earnings cut in the previous reporting cycles, but more a consequence of improving business conditions,” noted the research report.
O&G was a mixed bag with equal numbers meeting and missing expectations, though the current stability in crude oil prices is likely to encourage further activity.
The auto and technology sectors were the surprise packages, with more surprises than disappointments.
The media sector surprised with lower than expected losses as cost-saving initiatives bore fruit.
The banking sector continued to be weighed by asset quality issues, though earnings are expected to rebound in 2021 with credit costs still remaining relatively high.
“Earnings cuts were not as pronounced as the number of disappointments this time round however. Earnings of property, O&G and construction companies formed the bulk of cuts, predominantly to account for weaker sales (on the part of property) and lower profit margins (for the rest).
Target price increases were mostly a result of upward earnings adjustments, an important consideration in the recovery story.
“Earnings hits (above and/or in-line) and misses are a slightly better at 69%:31% vis-à-vis the 67%:33% as at 3Y20, with strength into the future expected to be maintained, particularly with the expected economic recovery in 2021.
A second consecutive quarter of improving outlook offers encouragement for the quarters ahead, the report noted.
“We see no changes to fundamentals of the recovery story and retain our ‘Over- weight’ stance on the manufacturing, technology, consumer, O&G, gaming and rubber glove sectors.
“Our expectation of 2021 year-end FTSE Bursa Malaysia (FBM) KLCI closing remains unchanged at 1,750 points (16.5x multiple to one-year forward earnings). We believe market fervour will be stronger in the second half of 2021, underpinned by still-strong retail participation and a gradual increase in foreign investor participation,” said PublicInvest.
While still early to deem conclusive, foreign investors have turned net buyers in recent weeks.
“We continue to like the prospects of Cypark Resources Bhd, Dayang Enterprise Holdings Bhd, D&O Green Technologies Bhd, Greatech Technology Bhd, Homeritz Corp Bhd, MI Technovation Bhd, Sarawak Plantations Bhd, Tenaga Nasional Bhd and Uzma Bhd in 2021,” the report added.