Corporate earnings recovery gains momentum

The recovery in Malaysian corporate earnings is gaining momentum, analysts said, pointing to the better-than-expected slew of financial results that came in for the third quarter of this year.

The recently concluded financial reporting season, like the previous season, surprised analysts on the upside.

According to RHB Research Institute Sdn Bhd, the bulk (83.8 per cent) of the corporate results that it covered came in either within or above its expectations. A similar picture was reflected in the consensus numbers.

"This suggests that there is still room for earnings upside surprises in the quarters ahead as the economic recovery gains momentum, even though it may not be as significant relative to what we have seen during the past two quarters," it said in a note to clients yesterday.

The number of companies whose earnings it upgraded exceeded the downgrades, as was the case in the previous quarter. Only 16 of the 99 companies that it covered turned in worse-than-expected earnings.
OSK Research Sdn Bhd, meanwhile, said that its preliminary analysis of the third quarter results season indicated that it was "a very strong results season" as the upgrade to downgrade ratio reached multi-year highs.

The banking sector stood out as the top performer this season, while plantation disappointed the most.

"More companies are reporting better margins as a result of improving demand, better product mix and lower operating expenses on the back of the implementation of cost-cutting measures," RHB noted.

Despite the better report card, RHB kept its year-end target for the FBM KLCI unchanged at 1,260 points, citing near-term external uncertainties. The stock market benchmark index closed higher than that yesterday, at 1,266.71.

It, however, raised the index target for next year to 1,370 from 1,345 before.

OSK, in a report yesterday, said December would be a good time to invest in Malaysian stocks.

It pointed out that since 1996, the index has posted an average 3.96 per cent gain 85 per cent of the time in the last month of the year, reaffirming a long-held belief of window-dressing at the year-end.

A similar gain this month would take the index to the 1,308.97-level, in line with OSK's view of a 1,345 fair value next year.