Revenue growth affected by market sentiment
Stephanie Jacob 

Fewer companies reported consistent revenue growth

Trading and services companies dominate the list

Equities attractive from a longer term perspective

The mixed sentiment on Bursa Malaysia in FY17 and the first half of FY18 is reflected in our Focus List of the fastest-growing companies on the bourse.

Compared to last year’s list, only 30 companies with a market capitalisation of above RM500 mil delivered stronger revenue growth and better net profit growth. Last year, there were 40 such companies.

We list the companies which notched up the fastest-growing revenue in their latest available full financial year results. Like last year, we split our list into two categories based on market cap. Table 1 comprises the top 30 companies (there were 40 last year) with market caps of above RM500 mil while Table 2 lists the top 10 below RM500 mil.

The performance of these listed entities was in line with the overall trend of the bourse over the past year and a half, where it hit some highs but also experienced periods of subdued sentiment. If we compare this year’s 30 companies with the Top 30 last year, their total market capitalisation rose by 169.7% to RM205 bil, largely due to the inclusion of large corporates like Public Bank Bhd and Nestle (M) Bhd.

In the first half of FY17, the FBM KLCI performed better on the back of sound corporate earnings and a robust global and local economic outlook. However, in the latter half of the year the benchmark index faltered even as regional peers outperformed.

Analysts identified the political uncertainty stemming from the then impending 14th General Election as the main reason for pressure on the market. Investors adopted a wait and see attitude as they tried to predict when the polls would be held. Geopolitical risks also factored into the subdued sentiment.

FY17 was a tale of two halves and this was reflected by the fact that while the FBM KLCI did advance 9.86%, it was also the second worst-performing Asian index, say analysts.

Similarly, FY18 started positively as the index climbed quickly past the 1,800-point mark in the early days of January. The market continued to hold steady till after the May 9 election which saw an unexpected Pakatan Harapan win.

Since the polls, the bourse has given up its early gains and the FBM KLCI was down 1.1% at 1,763.78 points as of July 25.

One reason for the retreat is the uncertainty as businesses adjusted to the new government’s policies.

“(The uncertainty) is likely to persist until more clarity emerges on domestic fiscal policies as foreign investors are very sensitive to any developments in emerging economies now,” iFAST Sdn Bhd analyst Tan Wei Yine tells FocusM.

Globally, the ongoing trade tariff battle between the US and China has also caused concern.

While the two giant economies impose tit-for-tat tariffs on each other’s goods and services, there are fears that global supply chains, particularly those which support China’s exports, will be affected.

“Trade uncertainties have tarnished the investment landscape so far … investors across the board have suffered from escalating volatility from the exchange of words between trade officials,” opines Tan in a separate research report.

However, he believes the market fundamentals are still intact and the pressure on markets is coming from “trade spat noise”.

“While there are uncertainties on the global trade front, fundamentals of the global economy are still intact … the recent correction has brought valuation levels of Asian and emerging market equities back to an attractive spot,” he adds.


Stronger revenue

Despite the mixed performance of the bourse, several listed entities have still managed to deliver better revenue and profit.

This year, companies from the trading and services sector dominate Table 1 with seven making the list. The consumer products and financial sectors come next with five companies each making the cut this year.

The technology sector has four entities on the list. Property and industrial products sectors are tied with three each, while two slots go to construction. REITs are represented by a single company.


Tech on top

N2N Connect Bhd takes the top spot in Table 1 after it recorded revenue growth of 132.6% to RM97.3 mil for FY17 ended Dec 31, from RM42 mil in the previous year. This in turn drove its net profit 103% higher to RM23.7 mil from RM11.7 mil previously.

N2N has a three-year revenue compound annual growth rate (CAGR) of 41.6% while its three-year net profit CAGR is 49.9%.

Property player Sunsuria Bhd comes in second as revenue for its FY17 ended Sept 30, rose 96.9% to RM398.5 mil from RM202.4 mil in FY16. It has a three-year revenue CAGR of 124%.

The healthier income translated into a 119% increase in net profit to RM107.9 mil from RM49.3 mil. Its three-year net profit CAGR is 211.6%.

Another tech company, Pentamaster Corp Bhd, rounds up the top three of Table 1. Its FY17 ended Dec 31, 2017 revenue strengthened 87% year-on-year (yoy) to RM284.2 mil from RM152 mil. It delivered a 51.9% three-year CAGR in revenue. Its FY17 net profit rose 32.4% to RM39.2 mil from RM29.6 mil in the previous year. Pentamaster’s three-year net profit CAGR is 86.5%.

Last year was a good one for the technology sector as semiconductor companies benefited from the global surge in demand for electrical and electronic products.

“Locally, the technology sector was the best-performing sector in 2017,” says analyst Jerry Lee. “(With) the Bursa Malaysia technology index delivering more than 89% in returns last year, it outperformed the FBM KLCI significantly.”

However, towards the end of the year, the industry began to feel the effects of the stronger ringgit. Coming into 2018, local semiconductor companies were impacted by disappointing iPhone sales and the escalating trade tensions between the US and China.

This has led to sell-downs of technology stocks, notes Lee. However, he believes the sector has tailwinds that make these counters promising.

These include still strong semiconductor sales in tandem with the growing use of artificial intelligence technology in many products.

The weaker ringgit against the greenback will also provide some temporary relief to the earnings pressure being faced by tech companies.

“The current prospects and valuation for the technology sector look attractive due to the year-to-date hefty sell-off,” says Lee. “The long-term growth story remains intact with AI technology being widely implemented which would eventually drive global demand for semiconductor products.”


Industrial products

Comfort Gloves Bhd comes out tops on Table 2 with a 60% increase in revenue to RM421.2 mil from RM263 mil for FY18 ended Jan 31, 2018. It has a three-year revenue CAGR of 39.5%.

Its net profit rose 38.8% to RM35.9 mil from RM25.9 mil, giving the glove manufacturer a three-year net profit CAGR of 104%.

In second spot is Sentoria Group Bhd which notched up a 25.1% increase in revenue to RM280.4 mil for FY17 ended Sept 30, 2017 versus RM224.2 mil in the previous year. The company has a three-year revenue CAGR of 8.7%.

Its net profit rose 14.9% yoy to RM38 mil from RM33.1 mil. Sentoria has a three-year net profit CAGR of 9.5%.

WZ Satu Bhd takes the third spot on a 20.3% higher revenue of RM560.4 mil in FY17 ended Aug 31, 2017, from RM466 mil the year before. Over the past three years, its revenue CAGR was 67%.

This translated into a 10.8% healthier net profit of RM26 mil against RM23 mil previously. The company has a three-year net profit CAGR of 42.8%. FocusM

This article first appeared in Focus Malaysia Issue 292.