Corporates, SMEs wary of profit squeeze in coming months: RAM survey

PETALING JAYA: Corporates and small and medium enterprises (SMEs) are both wary of the impact of rising cost pressures on profitability in the coming months, with SMEs being particularly negative on it, RAM Business Confidence Index found.
The findings were from surveying 2,149 corporates and 888 SMEs during the month of January and February 2017 for their second and third quarter business outlook based on turnover, profitability, business expansion, capital investment, hiring, capacity utilisation as well as access to bank financing, considerations.
RAM said in a statement yesterday, corporates are broadly confident on their business prospects over the next six months, although they warned of increasing headwinds to the pace of profitability growth. This was mainly attributed to rising costs of production, compounded by a persistently weak ringgit.
SMEs were even more bearish, as the survey found that they were negative on turnover and profitability for the Q2-Q3 period.
Like corporates, profitability was the main concern for SMEs, more so given their relatively weaker bargaining power amid rising cost pressures in the supply chain. The less optimistic profit outlook is also largely matched by a weaker turnover outlook, premised on lower demand for goods and services due to competitive pressures and economic sluggishness.
RAM said further from its discussions with SMEs, the slower rate of collections from their clients had also crimped the pace of existing work progress, posing further downside risks to turnover expectations for the next six months.
Nevertheless, the weaker sentiment in these two aspects were moderated by the more bullish outlook on hiring, capacity utilisation and business expansion, which recorded higher index values compared to the previous survey.
RAM Business Confidence Index findings also saw that export-oriented SMEs and corporates were more optimistic on overall business prospects for the next six months compared to those domestic-oriented, on the back of an expected pick-up in trade activities.
It found that despite continued optimism from both sides on business prospects, it was slightly diminished compared with the findings of its last survey, which was for the Q1-Q2 period of the year.