KUALA LUMPUR: While corporate earnings in the last quarter of 2008 were largely expected to disappoint, most research houses were slightly taken aback by the extent of the bleeding even if they had been aggressively cutting estimates amid the rapid deterioration of the economy.

“The February results season was the fourth straight quarterly letdown, which effectively means that CY2008 was as good as an unmitigated disaster,” CIMB Research said in a report yesterday.

On average, about half of corporate results came in below consensus, with no sector performing exceptionally well, according to analysts. However, some sectors such as automotive, technology, transport, construction, steel, and former market mover plantations, were hit harder than others.

In addition to the global economic slowdown affecting sentiment, last year’s final quarter saw companies affected by high locked-in material costs, foreign exchange losses, impairment charges, inventory writedowns and customer defaults.

“An aggregate RM3.6 billion sizeable writedowns and impairment losses, and about RM2 billion of forex losses were recorded, involving 17 companies within our coverage,” said Maybank Investment Bank.

Maybank IB also noted that during the reporting season, a number of companies cut dividend payments, frontloaded provisions and embarked on capital raising exercises.

“A total of eight companies under our coverage reduced their cash dividends in 2008 while TM International Bhd and Malayan Banking Bhd announced last week their intentions to raise capital via rights issues of RM5.25 billion and RM6 billion respectively,” said Maybank IB.

Blue chips also performed abysmally with heavy-hitters such as Sime Darby Bhd, Petronas Gas Bhd, MISC Bhd coming in significantly below expectations and companies such as Shell Refining Company (Federation of Malaya) Bhd, AirAsia Bhd and Proton Holdings Bhd chalking up losses.  

However, amidst the gloom there was some comfort to be found. Most analysts were in agreement that earnings for the banking sector came largely in line with street expectations.

OSK Research also noted that the consumer segment still appeared resilient with food companies performing better than their sector peers.

“All the food companies’ results were mostly in line with our estimates, as demand for food is still unaffected and they have benefited from the lower raw material costs,” said OSK.

Going forward however, most research houses do not expect any silver lining for 2009, with corporate earnings for the year to come in just as poorly.

“As it stands, earnings visibility is still poor and companies are reluctant to provide guidance on future profit trend given the global uncertainties,” RHB Research said.

CIMB said: “Since November, the projected earnings per share contraction for 2009 has widened from 3% to 7.8% despite the lower base in 2008.”

Maybank IB is also expecting more companies, specifically plantation firms to slash dividends as well as an increase in cash calls as the economy continues to deteriorate.

“We downgrade our 2009 and 2010 earnings forecasts by 7.3% and 6.1% respectively. There are also concerns that these cash calls could impact sentiment, following the huge rights issues by TMI and Maybank.

“In Singapore, we found that six out of 10 companies which had issued rights year-to-date traded below their respective rights prices at the end of February 2009,” said Maybank IB.

Among the events that analysts agree will affect market sentiment in the coming months include the political succession, the second fiscal stimulus package and the Umno election, all slated for this month.

The local bourse will also switch to a brand new trading platform, the FBM Bursa Malaysia KLCI on July 6.

Most research houses are cautiously positive on the construction sector in the coming months due to the stimulus package and lower raw material costs.

Both CIMB and OSK also like the gaming sector with its large cash hoards and attractive dividend yields with Maybank IB and RHB favouring defensive picks such as Tanjong plc.