Sunday, 29 November 2015

Poor earnings growth for Bursa listed companies

My interest was sparked by an (highly readable, if I may add) article "Bits & Pieces - What if?" (February 2015) from CLSA in which it was reported that listed Malaysian companies had performed rather poorly over the last three years, which was expected to continue in 2015:

                       2012    2013    2014    2015
Sales Growth           6.5%   -0.1%   -3.7%   -6.4%
EBITDA Growth          2.7%   -4.7%   -3.6%   -3.9%
Core Earnings Growth   2.6%   -5.5%  -11.0%   -7.8%

I was rather surprised by this, I knew that numbers were not impressive lately, but this bad?

With some helpful advice and suggestions from others I have tried to reconstruct some of the numbers and update them up to this moment.

The data below comes from the 30 heavyweight stocks from the FBMKLCI 30, representing around 62% of the total Malaysian market capitalisation. The yearly number is the net profit in Millions RM. For companies that have their year end in December I made a rough estimate (in red colour) based on their first nine months of results (good enough for all practical purposes).

If we add the numbers up we find the year-on-year growth:

We notice a rather high growth in 2012, partially explained by the disappointing earnings number of Tenaga in 2011. If that had been (say) three Billion RM higher, then the growth in 2012 would be roughly 6%, which sounds more reasonable.

However, what is striking is the poor results in 2013 and 2014 (about equal to the inflation number, in other words: corrected for inflation zero growth) and negative growth in 2015 (caused primarily by CIMB, IOI and Sime Darby).

These thirty companies are the heavyweight blue chips listed on Bursa Malaysia, one would have expected a much better performance.

Unfortunately things get even worse when we translate the numbers to USD. This is the 5-year graph of the Ringgit versus the US Dollar:

I have added the estimated average rate of the Ringgit in each year and recalculated the net profit in USD and the growth:

The numbers have clearly worsened, growth for 2013 and 2014 is even below inflation, while 2015 has fallen steeply off a cliff.

Is it relevant to calculate the earnings of Malaysian companies in US Dollars?

Yes it is, at least for international fund managers, their fund performance is calculated in US Dollars, and assuming that share prices are in the long run based on fundamentals (one important factor is earnings), those fundamentals should also be calculated in US Dollar.

But even for Malaysians the numbers in USD should carry some weight, many products are imported and priced in USD, to buy them one needs to have earnings in USD.

The above numbers do not look good, and are (partially) to blame for the poor performance of the Malaysian market.

Another issue is that the above numbers seem very much disconnected from the officially reported GDP numbers by the Department of Statistics Malaysia, which show around 5% yearly (real) growth for the years 2011 until 2015.

The correlation is definitely not very high between the two: the 30 companies do not cover all industries equally, the GDP is based on clearly more than corporate earnings or sales, etc.

But in each year the thirty companies earn more than RM 50 Billion net profit, a pretty decent result, which is surely significant for the Malaysian economy.

So one would have expected that if the economy is reported to nicely grow in real terms, that it would be translated in the numbers as reported by the heavyweight listed companies.


  1. Interesting analysis. The disconnect between corporate financial performance (sales, EBITDA and earnings), is puzzling. The fact that a number of large Malaysian companies have significant overseas earnings (the banks [esp. Maybank and CIMB] have sizeable regional opeations, palm oil companies in Indonesia, Genting - Resorts World Singapore, Axiata - regional telcos, IHH [hospitals in Singapore, Turkey], MISC has assets in the US etc) would have a bearing in disrupting any correlations

  2. Thanks Wammo. I agree, it is not an exact replica of the Malaysian economy, some industries are overrepresented, others underrepresented, as you pointed out some have foreign businesses. Still, why such a large difference? Also the fluctuations, they seems quite high year on year, while GDP clocks in 5% every year plus or minus a small amount.

  3. That's a question for the Dept of Stats! Haha