INVE$T | Market Sentiments
According to Forbes Asia, a total of 11 Malaysian firms were recognised under their 2021 Best Under A Billion list. The list highlights the resilience of 200 public-listed small and mid-sized companies in the Asia-Pacific region with sales under US$1bil (RM4.16bil). The Malaysian companies that made the list this year were Comfort Gloves Bhd, D&O Green Technologies Bhd, Dancomech Holdings Bhd, Dufu Technology Corp Bhd, FoundPac Group Bhd, Frontken Corp Bhd, Revenue Group Bhd, Scientex Bhd, Thong Guan Industries Bhd, UG Healthcare Corp Ltd and ViTrox Corp Bhd.
The top-three performing Malaysian firms in terms of total sales were Scientex (US$834mil or RM3.47bil), Thong Guan Industries (US$229mil or RM952mil) and Comfort Gloves (US$225mil or RM936mil). In terms of total net income, the top-three performers were Scientex (US$92mil or RM383mil), Comfort Gloves (US$67mil or RM279mil) and ViTrox (US$25mil or RM104mil).
Scientex manufactures and sells plastic products and also engages in property development. Thong Guan Industries is primarily involved in the manufacture of plastic packaging, while Comfort Gloves is engaged in the manufacture and trading of natural and synthetic specialty examination gloves. ViTrox specialises in designing and developing automated vision inspection systems and equipment testers for the semiconductor and electronic packaging industries, as well as electronic communications equipment.
The sound financial figures of the 200 companies on the list reflected how well they coped in the midst of a global pandemic. No surprise, healthcare and pharmaceutical-related companies were standouts while tech and logistics firms linked to the global e-commerce boom also benefitted. The list was meant to identify companies with long-term sustainable performances across a variety of metrics. From a universe of 20,000 publicly traded companies in the Asia-Pacific region with an annual revenue above US$10mil (RM41.58mil) and below US$1bil (RM4.16bil), only these 200 companies were selected. The companies on the list, which were unranked, were selected based on a composite score that incorporated their overall track record in measures. These include debt, sales and earnings-per-share growth over both the most recent fiscal one and three-year periods, as well as the strongest one and five-year average returns on equity. Aside from the quantitative criteria, qualitative screens were used as well, such as excluding companies with serious governance issues, questionable accounting, environmental concerns, management issues or legal troubles. State-controlled and subsidiaries of larger companies were also excluded. The criteria also ensured a geographic diversity of companies from across the region. The list used full-year annual results, based on the latest publicly available figures as of Aug 12, 2021, compiled by FactSet. FactSet is a United States-based financial data and software company that provides integrated data and software. All other research was done by Forbes Asia.
Relief measures delay recognition of problem loans – RAM
According to RAM Ratings co-head of financial institution ratings Wong Yin Ching, in conjunction with the publication of the rating agency’s Banking Quarterly Roundup Q2’21, the emergence of bad loans in the banking system is expected to be delayed in view of the sizeable proportion of loans under relief. With the reintroduction of the six-month blanket loan repayment moratorium for all retail, microenterprise and affected SME borrowers, impaired loans will continue to be suppressed for the rest of the year and even in the first half of 2022 (H1’22). The latest regulatory support measure – on an opt-in basis but automatically approved – came into effect in July following a rise in infections and stricter lockdowns which resulted in major disruptions to business activity. Targeted relief programmes offered by banks were already available prior to this. Based on data obtained during the recent bank results briefings, the average proportion of domestic loans under relief or restructuring and rescheduling programmes doubled to about 26% (ranging from 22% to 32% for individual banks) from the previous quarter for eight selected banking groups. This figure may creep up in the coming months although it understands the number of applications has already slowed in recent weeks. Not all relief loans will turn problematic as some borrowers took the payment holiday as a precaution. This is evident from the high percentage of relief loans with no arrears or held by the T20 income group, as shared by some banks. The system’s underlying asset quality however will only become clearer after forbearance measures are phased out, with bad loans likely to peak in late 2022 or early 2023. As at end-July 2021, the banking industry’s gross impaired loan ratio stood at a still-low 1.67%. All eight banks posted a higher year-on-year pre-tax profit in Q2’21, largely due to a low base effect, but performance was mixed on a quarter-on-quarter (q-o-q) basis. Results for the previous corresponding period were marred by a sharp squeeze in net interest margins (NIMs) because of substantial modification charges arising from the first loan moratorium and multiple policy rate cuts. NIMs have since staged a strong recovery (Q2’21: 2.33%; Q2’20: 1.83%), but the q-o-q improvement was modest (+2bps) as most deposits had already been repriced lower by Q1’21. The system’s NIM is envisaged to hover at the current level in the coming quarters and may even see slight compression. Banks are expected to book some modification losses in Q3’21 on account of the recent moratorium, but the quantum will be significantly lower than last year’s. In Q2’21, the average credit cost ratio (annualised) of the eight banks moderated q-o-q to 52bps from 61bps. RAM is maintaining its full-year projection of 60-70bps (2020: 84 bps) it is foreseen that banks will continue or step up efforts to build up provision reserves as the protracted lockdown has dampened nascent economic recovery. Despite heightened uncertainties, profit performance for the full year is expected to be better than previous year’s, driven by NIM recovery and to a lesser extent, lower provisioning charges.
Eye On The Markets
This week, on Friday (10Sep), the Ringgit opened at 4.1475 against the USD from 4.1440 on Monday (6Sept). Meanwhile, the Ringgit was 3.0886 to the Sing Dollar on Friday (10Sep). On Monday (6Sept), the FBM KLCI opened at 1590.67. As at Friday (10Sep) 10:00am, the FBM KLCI is down 11.87 points for the week at 1578.80. Over in US, the overnight Dow Jones Industrial Average closed down 151.69 points (-0.43%) to 34,879.38 whilst the NASDAQ shed 38.40 points (-0.25%) to 15,248.30.
