This article first appeared in Capital, The Edge Malaysia Weekly on December 2, 2024 - December 8, 2024

FROM snack food makers to semiconductor players, many companies incurred foreign exchange (forex) losses in the third quarter ended Sept 30, 2024.

The forex losses can be attributed to the sharp appreciation of the ringgit in the third quarter of this year. As the local currency climbed 12.5% against the US dollar to 4.12 from 4.72 during the quarter, companies — especially those who are export-oriented or with assets overseas — saw their earnings take a hit.

Some companies even fell into the red due to the forex losses. These included Kek Seng (M) Bhd (KL:KSENG), which is in the business of oil palm plantations, property and hotels. Its integrated plantations and property development and investment businesses are located in Malaysia, while its hotel segment consists of assets in the US and Canada.

The company posted a net loss of RM36.66 million for the third quarter ended Sept 30 (3QFY2024) as it was dragged down by unrealised forex losses amounting to a whopping RM81.84 million. This was its first quarterly net loss since 4QFY2020.

Food packaging company Can-One Bhd (KL:CANONE) saw its net loss widen to RM100.54 million in the third quarter ended Sept 30 (3Q2024) from RM23.12 million previously, on unrealised forex losses amounting to RM80.6 million. The silver lining is that its revenue grew 8.93% year on year (y-o-y) to RM793.46 million during the quarter as it had greater revenue recognition from general packaging, contract manufacturing and its property development division.

Big cap IJM Corp Bhd (KL:IJM) saw its earnings dragged down by a substantial amount of unrealised forex losses, amounting to RM70 million, in the second quarter ended Sept 30, 2024 (2QFY2025), which was almost equal to the group’s earnings for the quarter.

IJM’s forex losses were related to its overseas property development and tollway operations in India. The conglomerate’s net profit for 2QFY2025 slipped 20.8% to RM74.21 million from a year earlier.

The group says that after excluding the effects of the forex movements and fair value gain of RM1.3 million for 2QFY2025, its pre-tax profit would have decreased only marginally by 2.9% for the quarter.

With many companies’ earnings hurt by forex losses, should investors be concerned about this phenomenon? It depends, say market experts, adding that forex fluctuations are part and parcel of international business that can work both ways.

“A loss is a loss. However, there is a need to differentiate between realised and unrealised losses. Unrealised losses, which could be due to revaluation of foreign assets or liabilities, can be recovered when the currency movement direction is reversed,” says TA Investment chief investment officer Choo Swee Kee.

UOB Kay Hian head of research Vincent Khoo opines that the forex losses recorded this time are “one-off” in nature as they are related to the sharp appreciation of the ringgit against the US dollar in 3Q. “The ringgit has since weakened,” he says, adding that the trend of forex losses is not likely to carry on into 4Q.

Market experts say companies should be able to book forex gains if the ringgit, now hovering at 4.44, remains at current levels.

At the same time, there was a handful of companies that saw their earnings propped up by a massive amount of forex gains in 3Q as a result of US dollar loans recording positive forex translation gains. Three companies stood out — Capital A Bhd (KL:CAPITALA), Tenaga Nasional Bhd (KL:TENAGA) and Axiata Group Bhd (KL:AXIATA).

Capital A swung back into the black in 3QFY2024, with a net profit of RM1.6 billion from a net loss of RM102.7 million a year earlier. Its performance was largely due to unrealised forex gains of RM2.2 billion recorded during the quarter.

Axiata had a dramatic turnaround with a net profit of RM951 million in 3Q2024, from a net loss of RM797.41 million in 3Q2023, on account of its unrealised forex gain of RM1.03 billion.

Meanwhile, Tenaga registered a forex gain of RM1.1 billion for 3Q2024, which lifted its net profit to RM1.6 billion, an 85% y-o-y increase and a 10% gain quarter on quarter (q-o-q).

According to CSG-CIMB Research, if the forex gains were stripped out, along with other smaller one-off items, the utility company would have reported a q-o-q decline of 57% in net profit for 3Q2024 on seasonally higher overhead-related expenses during the quarter, which was further exacerbated by higher “other” operating costs.

Besides forex gains and losses, another noticeable trend that emerged in the 3Q earnings was special dividends, which is likely a move to pay out dividends before the 2% dividend tax takes effect in 2025.

Companies that paid out a substantial amount in special dividends this quarter include Malaysia Smelting Corp Bhd (KL:MSC), Lysaght Galvanised Steel Bhd (KL:LYSAGHT) and MBM Resources Bhd (KL:MBMR).

Lysaght stands as the company that declared the highest amount of special dividend in 3QFY2024, with a whopping 35 sen per share for the financial year ended Dec 31, 2024 (FY2024), which will be paid out on Dec 9. Together with an interim dividend of eight sen per share, its shareholders will have received a total dividend of 43 sen per share to date for FY2024.

MBM Resources dished out a special dividend of 22 sen per share to its shareholders for 3QFY2024 — the second time for FY2024. It has paid out so far two interim dividends amounting to 13 sen and a special dividend of 10 sen in 2QFY2024. This brings its total dividends to 45 sen for FY2024, with one more quarter to go.

Meanwhile, MSC will pay out its first special dividend since its listing. It announced a special dividend of 17 sen per share for FY2024 that will be paid out on Dec 23. It also announced an interim dividend of seven sen per share, bringing the total dividend declared to 24 sen for FY2024.

It was interesting to note that Chin Teck Plantations Bhd (KL:CHINTEK) brought forward its dividend payment. The plantation company declared a special dividend of seven sen per share as well as a first interim dividend of eight sen per share for its financial year ending Aug 31, 2025 (FY2025). The dividends, which were announced prior to the conclusion of its first quarter ending Nov 30, will be paid on Dec 27.

Overall, heads of research contacted by The Edge say their preliminary assessment shows that about half of the companies under their coverage saw 3Q earnings in line with expectations. However, there were more companies that came in below expectations compared to those who exceeded expectations.

One head of research mentions that revenue in 3Q had generally improved on both y-o-y and q-o-q basis, pointing to better business undertones.

There were a few disappointments among the FBM KLCI component stocks, which led to an underwhelming 3Q earnings season, according to CIMB Securities in its Nov 29 report.

The net earnings of the benchmark index constituents in 3Q amounted to RM19.23 billion, a growth of 11.4% y-o-y and 2.9% q-o-q. Of the 30 component stocks, 17 saw improved earnings for the quarter compared with the previous year while 13 reported lower earnings.

Leading the pack in weaker earnings for the quarter is Petronas Chemicals Group Bhd (KL:PCHEM), which fell into a net loss for the first time since its listing more than 10 years ago.

PetChem’s net loss for 3QFY2024 amounted to RM789 million, with its unrealised forex losses amounting to RM1.1 billion, without which it would have made an estimated net profit of RM352 million. The group’s earnings were affected by the sharp depreciation of the US dollar, mainly due to its investment in Pengerang Petrochemical Company Sdn Bhd (PPC).

Maybank Investment Bank Research said in its report that the group’s cumulative nine months’ earnings for the quarter ended Sept 30, 2024 (9MFY2024) at RM750 million came in below expectations at 72% of its full-year estimate.

The research house said PetChem had started to recognise its 50% portion of PPC’s operating costs in 3Q2024, comprising RM300 million in interest expense and RM400 million in depreciation annually. It opines that PPC will be loss-making for the next three years. It has a “sell” call on the stock and lowered its 12-month target price to RM3.82 from RM4.18 previously.

Integrated plantations company Kuala Lumpur Kepong Bhd (KL:KLK) did not fare well this quarter (4QFY2024 ended Sept 30), reporting a net profit of RM6.77 million, a sharp decline of 94.18% from a year earlier. Its lower net profit was a result of lower downstream margins and increased losses at its associate companies.

In contrast, IOI Corp Bhd (KL:IOICORP) posted a 133.8% increase in net profit for the first quarter ended Sept 30, 2024 (1QFY2025) to RM710.7 million from a year earlier.

The company’s earnings were lifted by forex gains from its US dollar-denominated borrowings on the back of a strengthening ringgit in 3Q and fair value adjustments to its biological assets and derivative financial instruments. Excluding the RM449.5 million gain from one-off non-operating items, of which RM365.9 million was a net forex gain, its underlying profit before tax for 1QFY2025 was up 4% to RM359.1 million from RM344.4 million.

Meanwhile, Genting Malaysia Bhd (KL:GENM) saw its 3QFY2024 net profit jump threefold from a year earlier on net unrealised forex gains amounting to RM601.8 million on its US-dollar denominated borrowings.

The group’s net profit amounted to RM569.16 million for 3QFY2024 — the highest quarterly profit in almost six years — compared with RM177.41 million in 3QFY2023. However, if the impact of forex gains were excluded, its earnings before interest, taxes, depreciation and amortisation (Ebitda) would have been down 6%.

Sunway Bhd (KL:SUNWAY) saw its net earnings increase 108% y-o-y to RM376.08 million on the back of stronger operating performance across its core businesses. It is the only company on the FBM KLCI to see its earnings double or more that was not propped up by unrealised forex gains in 3Q.

Instead, its earnings were lifted by the recognition of an accumulated development profit of about RM124 million from its executive condominium development Parc Central Residences in Singapore.

More energy companies reported improved earnings on a y-o-y basis in 3Q. Companies in the offshore support vessel (OSV) segment, such as Keyfield International Bhd (KL:KEYFIELD), Perdana Petroleum Bhd (KL:PERDANA) and Icon Offshore Bhd (KL:ICON) saw 3QFY2024 net profit improve at least three times from a year earlier.

Keyfield chalked up a net profit of RM81.11 million for 3QFY2024, up six times from a year earlier, while Perdana’s net profit improved 3.3 times to RM75.8 million and Icon saw its net profit increase three times to RM19.43 million.

The improvement in net profit was driven by better daily charter rates. Perdana and Keyfield also attributed the improvement in earnings to better utilisation of vessels, whereas Icon said utilisation fell to 78% from 86% in 3QFY2023 due to unplanned maintenance.

Owner and operator of jack-up rigs Velesto Energy Bhd’s (KL:VELESTO) earnings for 3QFY2024 improved more than three times to RM42.93 million compared with the previous corresponding quarter. The improvement was attributed to higher utilisation and average daily charter rates for jack-up rigs.

Meanwhile, fabrication company Malaysia Marine and Heavy Engineering Bhd (KL:MHB) swung back into the black with a net profit of RM15.27 million for 3QFY2024 from a net loss of RM105.21 million a year earlier. It attributed the better performance to both its heavy engineering and marine segments.

Interestingly, as a sector, the Bursa Malaysia Energy Index has not gained much this year. It has trended downwards since hitting a year high of 1,012.24 points on June 13. At 811.66 points on Nov 29, it was 0.74% lower than at the start of the year.

All banks listed on Bursa saw a y-o-y improvement in net profit in the third quarter, save for Bank Islam Malaysia Bhd (KL:BIMB), whose net profit fell 7.2% y-o-y to RM130.44 million.

Notably, Affin Bank Bhd recorded the largest percentage increase in quarterly net profit, up 45% to RM145.82 million from a year earlier on higher interest income and income from its Islamic banking business. The banking group also saw higher write-back of credit impairment losses and higher net forex gains during the quarter.

Meanwhile, RHB Bank Bhd (KL:RHBBANK) posted a 28% y-o-y growth in its net profit, amounting to RM833.19 million, in 3QFY2024. The increase was attributed to sharp currency gains that lifted its non-interest income by RM659.86 million.

Net income for the quarter stood at RM996.78 million, an 8.8% y-o-y increase, whereas other operating income doubled to RM1.045 billion on account of net forex gains.

Many would agree that the most underwhelming earnings results for the quarter came from the technology sector as semiconductor companies are still waiting for the cycle to turn.

Oppstar Bhd (KL:OPPSTAR) reported a net loss of RM1.73 million for the second quarter ended Sept 30, 2024 (2QFY2025). This was despite a higher revenue of RM21.72 million, up 54.8% y-o-y. The company made a net profit of RM4 million in the previous corresponding quarter.

Oppstar, which is in the business of integrated circuit design, says its loss was mainly due to an increase in administrative expenses and a decline in other income.

Another semiconductor-related company that made a loss during the quarter was Mi Technovation Bhd (KL:MI). It reported a net loss of RM7.2 million for 3QFY2024, compared with a net profit of RM14.16 million in the previous year, primarily due to a substantial unrealised forex loss in the quarter.

In the company’s financial statements, it mentioned that it foresees the ringgit further strengthening by the end of 4Q. As a result, its board is of the view that the group’s net profit for FY2024 will come under pressure from unrealised forex losses and higher research and development expenditure. It added that it would take measures to effectively mitigate the forex risk.

The automated test equipment manufacturers as well as the packing and testing companies in the electrical and electronics supply chain did not fare well in 3Q, with many posting weaker earnings than a year earlier. These include ViTrox Corp Bhd (KL:VITROX), Pentamaster Corp Bhd (KL:PENTA), Greatech Technologies Bhd (KL:GREATEC) and Inari Amertron Bhd (KL:INARI).

While many languished, there were some that saw improved earnings during the quarter. Malaysian Pacific Industries Bhd (KL:MPI) saw its net profit increase 82.4% y-o-y to RM30.13 million in the first quarter ended Sept 30, 2024 (1QFY2025). The company says the better performance was a result of its higher revenue, which inched up 0.6% to RM516.57 million, and lower operating expenses incurred during the quarter.

Meanwhile, Unisem (M) Bhd’s (KL:UNISEM) 3QFY2024 net profit increased to RM26.75 million, up 48.5% from a year earlier, on the back of better revenue and forex gains made during the quarter. The increase in revenue and net profit was mainly attributed to higher sales volume and forex gains, as opposed to forex losses in the previous corresponding period. 

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