Corporate results ‘headed in the right direction’ as 4Q21 earnings show a slight positive trend, say analysts

KUALA LUMPUR (March 2): Corporate results are headed in the right direction as the recent December quarter earnings (4Q21) show a slight positive trend, observe analysts.

RHB Retail Research in a Wednesday (March 1) strategy report said the December quarter results were “relatively encouraging”, building on the green shoots of recovery seen during the preceding September quarter on the back of the normalisation of economic activity that will continue to gain momentum through 2022.

“The market’s defensive attributes are attracting new foreign portfolio flows while the anticipated relaxation of border restrictions will lift trading sentiment,” it noted, adding that the December quarter results are “headed in the right direction”.

Nonetheless, it added that regulatory and political risks, a protracted crisis in Ukraine as well as uncompelling valuations could limit the market’s fundamental upside.

RHB pointed out that Malaysia’s limited trade and business ties with Russia and Ukraine, coupled with the old economy, commodity-centric industries, offer Bursa Malaysia some defensive attributes.

In the near term, it expects foreign portfolio interest to remain elevated with a focus on defensive sectors — consumer, healthcare, utilities, basic materials, REITs and resilient high dividend-yielding stocks.

It added that 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. Fiscal and regulatory risks remain as higher oil prices continue to add to a rising fuel subsidy bill that already exceeds incremental fiscal revenues,” RHB said.

“The heightened market volatility supports a trading strategy centred around core defensive exposure. The recent outperformance of large caps has already lifted the KLCI’s FY22F P/E to 16.5x on the back of nominal EPS contraction of 2.2% that suggests profit taking on the large caps and investor patience to accumulate at lower levels,” it added.

RHB pointed out that five sectors beat expectations in the recent corporate results — including the bellwether banking sector, plantation, auto, NBFI (non bank lenders) and property — which trumped the two sectors that disappointed (gloves and consumer).

“The banking sector reported robust operating metrics, coupled with well contained credit costs, while plantation earnings beat on the back of higher CPO prices realised,” it said.

The misses-to-beats ratio improved to 0.6 from 1.1 in the preceding September quarter, it added, noting that 35.6% of earnings beat expectations compared to just 22% that disappointed.

UOB KayHian Research turning defensive

UOB KayHian Research noted that stocks under its coverage posted a “slightly positive earnings trend” in 4Q21, with strong upgrades for plantation stocks prompting a modest uplift in the FTSE Bursa Malaysia KLCI’s 2022 earnings growth outlook.

The foreign research house, however, is turning “generally defensive” as the global economy enters a period of high inflation and US rate hike cycle.

“Nevertheless, we do not embrace a scenario of a prolonged global stagflation and retain some growth- and event-driven companies among our top picks,” UOB KayHian said in a Wednesday report.

It is maintaining the end-22 FBM KLCI target at 1,635, valuing the index at around 16.2x 2022F PE (historical mean).

UOB KayHian’s top picks are Astro Malaysia, Genting Malaysia, IHH Healthcare, MyEG Services, Press Metal Aluminium Holdings, RHB Bank (which replaces CIMB), TIME dotCom and VS Industry.

“We are not overly bearish at this point, and while we favour high yielders and low beta stocks, we still retain some growth- and event-driven companies among our top picks. Commodity stocks will generally continue to extend their outperformances so long as the Russia-Ukraine war does not abate,” it noted.

Edited by Joyce Goh

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