KUALA LUMPUR: Corporate Malaysia generally posted market-topping earnings and encouraging financial results in the fourth quarter of last year and that momentum is expected to continue into 2022.
An analyst with a bank-backed brokerage said the government’s push to reopen borders and avert another lockdown would aid in earnings recovery for this year.
“Many sectors saw a pick-up in earnings in the final quarter of 2021, spurred by the gradual reopening of the economy, resumption of more business activities, accommodative policies and improving vaccination rates.”
While Covid-19 cases have risen to record highs as of late, the analyst pointed out that hospitalisations and mortality rates were nowhere near as severe as they were last year.
“Going into 2022, what is key is if we can bring the business environment back to pre-pandemic levels,” he said.
Commenting on last year’s fourth quarter earnings results, RHB Investment Bank Bhd regional equity research head Alexander Chia (pic) said five sectors beat expectations including the bellwether banking sector, plantation, auto, non-bank financial institutions and property.
He said these sectors trumped the two sectors that disappointed, namely gloves and consumer stocks.
“The banking sector reported robust operating metrics, coupled with well-contained credit costs, while plantation earnings beat on the back of higher crude palm oil (CPO) prices realised,” he said in a report.
TA Research said the banking sector reported a solid set of fourth-quarter 2021 results, with combined net profit rising 26.8% quarter-on-quarter and 47.2% year-on-year to RM6.4bil.
It said full-year net profit ballooned to RM21.2bil from RM18.8bil in 2020.
Incorporating the banking sector’s 2021 fourth-quarter results, TA Research raised its 2022 and 2023 earnings estimates by 5.4% and 4.1%, respectively, after revising loan growth forecasts and lowering credit cost assumptions as the market outlook improves.
“We reiterate our ‘overweight’ stance on the banking sector as the momentum in the domestic economic activities should continue to gradually improve, thus leading to our stronger year-on-year loan growth projections in 2022 due to the reopening of international borders.”
TA Research said: “We reiterate our ‘overweight’ stance on the banking sector as the momentum in the domestic economic activities should continue to gradually improve, thus leading to our stronger year-on-year loan growth projections in 2022 due to the reopening of international borders.”
MIDF Research, meanwhile, said the plantation sector’s fourth-quarter 2021 performance was predominantly fuelled by the high price of CPO.
“The average selling price of CPO in the fourth quarter of 2021 was RM5,171.4 per tonne, representing a huge improvement from RM3,372.6 per tonne in the fourth quarter of 2020.
Going forward, MIDF Research said it expects production levels to improve slightly in the coming months, following better weather conditions and the return of foreign workers to Malaysia’s plantation industry.
“However, we believe that production levels will not fully recover due to the lagging effect of cutback on fertiliser application by smallholders in the second half of 2018.
“We believe the palm oil supply tightness situation will remain in the near term and likely ease in the second half of 2022, but at a slow pace.”
As for the property sector, TA Securities said the final quarter of 2021 saw the highest percentage of developers reporting core earnings beyond its forecasts in a decade, with six out of eight developers under its coverage reporting earnings above projections.
“In terms of property sales performance, the sector’s fourth-quarter 2021 aggregate property sales grew 10% year-on-year and 66% quarter-on-quarter.
“For the cumulative 12-month period, developers reported a 34% year-on-year increase in property sales.”
An analyst said sales performance within the property sector last year was mostly driven by the Home Ownership Campaign (HOC).
“The campaign saw developers offering various discounts and incentives to woo buyers and spur buying interest. It also helped to buffer the impact to businesses as a result of the various movement restrictions that were imposed last year.”
The HOC was reintroduced in June 2020 under the Penjana initiative to boost the property market after it was adversely affected by the Covid-19 pandemic. The campaign ended on Dec 31, 2021.
With the HOC officially concluded last year and the recent spike in new Covid-19 cases, TA Securities said developers are conservatively setting flat sales targets for this year.
“However, we see pent-up demand for landed homes and affordable high rises in the urban areas.
“Despite the absence of the HOC, we gather that bookings remain encouraging in the first two months of this year.
“Additionally, the current sales target did not account for any potential land sale. As a result, we do see potential upside to 2022’s sales performance.”
Separately, RHB Investment Bank said financial results of the auto sector in the final quarter of last year improved on a quarterly basis, following the gradual resumption in operating activities post-relaxation of movement restrictions.
“The sales tax exemption incentive that ends in June, the introduction of new models including electric vehicles at more competitive prices and aggressive promotional campaigns by automotive players will help to push sales and sustain buying interest,” it said.
Kenanga Research, meanwhile, said oil and gas companies recorded largely improved earnings during the final quarter of 2021, with most stocks under its coverage reporting results that were at least within expectations or better.
“Considering the geopolitical tension and shortage in supply, we have raised our 2022 average Brent crude oil price assumption to US$90 per barrel (RM377) from US$65 (RM272) previously. As such, activity levels are expected to recover in 2022.”
RHB Investment Bank noted that Malaysia’s limited trade and business ties with Russia and Ukraine, coupled with the old economy, commodity-centric industries, offers Bursa Malaysia some defensive attributes.
“In the near term, we expect foreign portfolio interest to remain elevated with a focus on defensive sectors such as consumer, healthcare, utilities, basic materials, real estate investment trusts and resilient high-dividend yielding stocks.”
It said a worsening of the crisis could drive commodity prices even higher.
“The Ukraine crisis is a significant inflationary event that will present the US Federal Reserve with a dilemma on how to conduct its monetary tightening programme. A prolonged crisis will threaten the global economic recovery.”
Separately, an analyst said it was still too early to make any projections on how the ongoing Russia-Ukraine conflict will impact the local corporate sector.
“It’s just too early to say. Right now, many corporations would already have their strategies and key performance indicators laid out for 2022, sans a potential outright war. However, they will certainly be keeping a close eye on the situation,” he said.