KUALA LUMPUR: Despite the bleak economic prospects that have worried many amid external headwinds and uncertainties on the local front, corporate earnings have not been disappointing so far, with some even beating expectations.

This has also raised optimism that corporate earnings could be better this year, driven by domestic spending and higher commodity prices.

“Finally, most corporate earnings for the fourth quarter of 2016 announced are meeting analysts’ expectations, after two or three years of disappointments. This is the initial sign that corporate earnings have begun to stabilise,” Hong Leong Investment Bank Bhd (HLIB) head of research Sia Ket Ee told The Edge Financial Daily.

He said thus far, about 60% of the counters under the research house’s coverage, which have released quarterly earnings for the quarter ended Dec 31, 2016, came in within expectations and 20% are above expectations.

This is relatively better compared to the past few quarters, according to him.

CIMB Investment Bank Bhd head of equity research for Malaysia Ivy Ng concurs that there is lesser disappointment this time compared to the previous quarter so far.

“I would say corporate earnings reported so far are fairly decent as about 70% of the companies under our coverage that have released their results came in within or above our expectations,” Ng commented, noting that the numbers are not final as some companies have yet to reveal their numbers.

“We are positive and expect corporate earnings to grow 10% in 2017, mainly driven by the banks, higher commodities prices and production, as well as improvement in consumer spending. Generally, we are expecting the economy to continue growing,” said Ng when asked about her expectations for corporate earnings growth moving forward.

HLIB’s Sia also holds the view that Malaysia’s domestic economic growth will pick up gradually this year. He expects gross domestic product to grow 4.5% in 2017, versus 4.2% year-on-year last year.

KAF Investment Funds Bhd fund manager Tan Gan Leong pointed out that plantation companies have stood out and reported strong performance in the fourth quarter last year, thanks to strong crude palm oil (CPO) prices.

“From our observations, most companies were able to realise their profit at [a] CPO price of RM2,800 per tonne. Moving forward, we expect other plantation companies including Felda Global Ventures Holdings Bhd, Ta Ann Holdings Bhd and MKH Bhd to release strong results too. We are bullish on the plantation sector, and we think the strong results can last for at least another quarter,” he said.

In a note dated Feb 24, AmBank Research (AmResearch) said midway past the fourth quarter of 2016 reporting season, 63% of stocks under the research house’s coverage have thus far reported “fairly decent” earnings.

AmResearch is upbeat about the plantation sector too, pointing out that major players such as Kuala Lumpur Kepong Bhd IOI Corp Bhd, Genting Plantations Bhd and IJM Plantations Bhd beat forecasts, thanks largely to the higher-than-expected CPO and palm kernel oil prices realised, which more than offset the weak production and the still subdued performance of the downstream segment.

AmResearch said banks have generally delivered their numbers.

“While there has been an uptick in provisioning during the October to December 2016 quarter, the quantum of the provisioning has been within our expectations,” it added.

On the other hand, the research house said the showing from telcos has been mixed. Maxis Bhd’s numbers came in stronger, thanks to lower year-end marketing costs, while Axiata Group Bhd was weighed down by accelerated depreciation and lumpy merger and acquisition-related costs.

As per third quarter of 2016, AmResearch said most consumer stocks have thus far been disappointing. While the decline in sales volumes has generally stabilised, margin pressure has remained as they no longer enjoy abnormally low input costs as in the previous years.

However, consumer-related companies, like Padini Bhd and OldTown Bhd, saw an over 60% jump in quarterly earnings. OldTown’s net profit more than doubled to RM24.35 million in the third quarter ended Dec 31, 2016.

Over at the banking industry and oil and gas (O&G) industry — the two sectors that have fallen out of favour in the past two years — may see some upside potential in earnings.

“For the banking sector, our analysts think that provisions will not be as heavy as before for some of the banks,” Ng said.

An analyst from a local research house pointed out that there is a recovery in crude oil prices and most O&G companies have completed asset impairment over the last two years, while the impact of the one-off mutual separation scheme or voluntary separation scheme was over for most banks.

“Some of these companies have seen improvement in their financial results. Moving forward, we can expect [a] recovery in earnings,” he said.

Nonetheless, there are concerns that rising inflationary pressure could curb corporate earnings growth, especially for consumer-related companies, as people’s purchasing power weakens. Some corporations will have to bear higher costs too that may lead to margin compression, according to analysts.

The Consumer Price Index went up 3.2% year-on-year in January — the highest level in 11 months. The inflationary pressure was fuelled by an increase in transportation costs as a result of hikes in petrol prices.

Malaysia’s inflationary pressure is expected to intensify this year, due mainly to external risks on a weaker ringgit and higher crude oil prices, according to economists.