Mixed set of results in 4Q22

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PETALING JAYA: Corporate Malaysia delivered a set of mixed results in the fourth quarter of 2022 (4Q22), as the momentum of post-pandemic rebound began to dissipate.

On the bright side, however, the 4Q22 earnings season had a positive undertone as there were lower earnings disappointments on a quarter-on-quarter (q-o-q) basis.

In particular, sectors such as telecommunications, consumer and banking were among the key outperformers in 4Q22.

TA Research said the recently concluded 4Q22 results season largely met its expectations.

“Of the 109 companies under our coverage, 45 companies (41% of coverage) reported earnings that were within our estimates.

“Automotive, banking, consumer, healthcare, plantations, property and technology (sectors) reported earnings that were in line with our expectations.

“About 29% of our coverage, or 32 companies, posted results that beat our expectations. Oil and gas (O&G) and telecommunications were the two sectors that outperformed during the quarter under review,” it said in a note yesterday.

Meanwhile, a total of 32 companies or 29% of TA Research’s coverage universe reported disappointing results.

Among the sectors with weaker-than-expected earnings were building materials, gaming and transportation, media as well as power and utilities.

“The quarter under review reported a 5.6% sequential contraction in aggregate core earnings, reversing the trend of two consecutive quarters of q-o-q earnings expansion.

“On a year-on-year (y-o-y) basis, it was 9.8% weaker.

“This resulted in the cumulative 12 months of 2022 aggregate core earnings of stocks under our coverage dipping further into an earnings contraction of 3.4%, from a 1.9% decline for the first nine months of 2022 previously,” it added.

In its 4Q22 earnings wrap-up report, Kenanga Research pointed out that companies in the consumer space still enjoyed strong sales as government subsidies on fuel and staple food items as well as a stable job market buffered consumer spending from the high inflation.

The O&G service providers were buoyed by increased activity levels, while integrated planters saw margin expansion at their downstream operations.

“On the flip side, cost pressures (including high-cost inventory) hurt planters, O&G service providers, manufacturers and even airport operator.

“Meanwhile, players in the export-oriented tech and electronic manufacturing services space have already started feeling the pinch from the global economic slowdown,” it said.

Within the 30-stock FBM KLCI, Kenanga Research noted that 4Q22 results showed q-o-q improvement.

About 31% component stocks beat its projections, while 45% and 25% of FBM KLCI stocks met and missed the research house’s estimates, respectively.

For comparison, in 3Q22, 17%, 52% and 31% of FBM KLCI stocks beat, met and missed Kenanga Research’s projections, respectively.

“Nine FBM KLCI component stocks under our coverage beat our projections, namely Axiata Group Bhd, Digi.Com Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd, MISC Bhd, Public Bank Bhd, PPB Group Bhd, Petronas Dagangan Bhd and QL Resources Bhd,” it said.

In a separate note, MIDF Research said the aggregate reported 4Q22 earnings of FBM KLCI’s 30 constituents jumped to RM24.2bil.

On a q-o-q basis, the earnings surged by 47.9%, while on a y-o-y basis, the earnings increased by 59.8%.

“After adjusting for non-operational or recurrence items incurred during the quarter under review (mainly goodwill impairment and gain on disposal by Axiata totalling almost RM9.5bil), the aggregate normalised quarterly earnings of FBM KLCI’s 30 current constituents came in lower at RM14.4bil in 4Q22.

“After neutralising the extraordinary items during relevant quarters, the aggregate normalised growth in 4Q22 came in at minus 18.6% q-o-q and minus 6.5% y-o-y,” stated MIDF Research.

Following the 4Q22 results, which Kenanga Research labelled as “mixed”, it lowered the 2023 earnings forecast for FBM KLCI to 10.5%, as compared to 12.2% previously.

The end-2023 FBM KLCI target was also cut to 1,610 points, based on a 15.5 times price-to-earnings (PE) ratio for 2023.

Such a PE multiple is a discount to FBM KLCI’s five-year historical average of 18 times to reflect valuation deflation across asset classes against a backdrop of an aggressive monetary tightening by major policymakers globally.

“We continue to advocate investors to seek refuge in sectors with strong earnings resilience amid rising external headwinds such as banks, telcos, auto makers or distributors, retailers and contractors.

“These sectors have also emerged clear winners of the new Budget 2023, which is highly supportive of domestic consumption,” according to Kenanga Research.

A more upbeat UOB Kay Hian Research (UOBKH) believes that Malaysian equities will sustain an uptrend in 2023, as political uncertainties abate after the state elections in 3Q23.

“After the 4Q22 results season, we raised our 2023 and 2024 earnings forecasts by 0.8% and 3.1%, respectively, while revising the FBM KLCI’s 2023 earnings up by 0.4%.

“The earnings downgrade mainly relates to the aviation, gloves, media and technology sectors, while upgrades were mainly to the gaming, healthcare and O&G sectors,” it said.

Looking ahead, UOBKH called for a defensive strategy, although it said it still roots for a rebound in the second half of 2023 (2H23).

“We expect Malaysian equities to stay in consolidation mode through 1H23 and trim end-2023 FBM KLCI target to 1,620 points.

“Bet on economic reopening plays and selected technology companies,” it said.