Most sectors overcome lockdown challenges for 2QCY21 profit growth

The financial service sector tops the list with a quarterly net profit of RM7.3b, followed by healthcare (RM6.8b) and plantation (RM2.4b)


CORPORATE earnings in the second quarter of the calendar year 2021 (2QCY21) remained on a positive growth trajectory despite the imposition of the Movement Control Order (MCO) 3.0.

MIDF Research said most of the sectors recorded improved total earnings in 2QCY21 compared to both the preceding quarter and the corresponding period last year.

“The reported earnings of companies under MIDF Research Universe coverage increased 20.6% quarter-on-quarter to RM23.6 billion in 2QCY21, continuing the rebound which began in the 3QCY20,” MIDF Research wrote in its quarterly earnings wrap report last week.

The research team noted its on-year figure also increased 140.5% year-on-year (YoY), contributed by a 595.9% YoY jump in healthcare, that is the glove, earnings.

All sectors, except construction, consumer products and services, real estate investment trusts (REITs) and utilities, recorded improved total earnings (as reported) in 2QCY21 compared to both the preceding quarter and corresponding period last year.

The financial service sector tops the list with a quarterly net profit of RM7.32 billion, followed by healthcare (RM6.8 billion) and plantation (RM2.38 billion).

“The average selling prices (ASPs) for rubber gloves are likely to have peaked in 2QCY21 but remain much higher than pre-pandemic level.

“While demand is expected to remain robust on the heightened hygiene awareness and wider application across different sectors,” MIDF Research said.

However, gloves are expected to be weaker in 3QCY21 due to the closure of glove factories particularly in the areas that were imposed with Enhanced MCO.

MIDF stated that plantation players have shown inspiring results in 2QCY21 and will continue to experience a better quarter as the price of crude palm oil (CPO) remains high.

“The high ASP of CPO has positively impacted plantation companies’ earnings, including both pure upstream and vertically integrated industry players,” it added.

On the other hand, MIDF Research said the 2QCY21 earnings for the consumer (automotive) was weak due to a short quarter as June was impacted by the lockdowns.

Compared to last year, it said all auto companies performed much better given support from the tax holiday throughout April and May.

In the consumer sector involving food and beverage (F&B) and retail, MIDF Research said cost pressure intensified due to prolonged high commodity prices, although F&B companies reported resilient sales from the hotel, restaurant and cafe segment.

“Most companies were still able to maintain their profit margin due to cost optimisation and hedging strategies but with prices staying consistently high, F&B producers might find it increasingly challenging to maintain their previous gross profit margins,” MIDF Research said.

It also said the rising number of Covid-19 cases in the country has disrupted the recovery potential for the retail sector.

“As the lockdown was longer than expected, recovery for the retail sector could be deferred and we expect better prospects for the sector once the hospitalisation rate comes down,” MIDF Research added.

The research house said retail REITs reported disappointing earnings due to the adverse impact of full lockdown.

“Earnings were dragged by rental support to tenants as only tenants in essential services are allowed to operate. Besides, lower earnings of retail REITS were also owing to the lower footfall of shopping malls due to movement restrictions.”

Separately, AmInvestment Bank Bhd (AmInvest) analyst Joshua Ng said the pandemic has inflicted on businesses and hence banks’ asset quality.

“While clarity is still lacking with regards to the extent of the irreversible damage the pandemic, we take comfort that banks have started to make pre-emptive provisions in the form of management overlays, in addition to provisions based on changes to macroeconomic factors,” Ng said in a research report last week.

He said other key sectors that are poised to benefit from the recovery are the power, oil and gas, seaport, airport, consumer and REIT sectors.