MIDF Research noted that there was a divergence in net change to forward earnings between heavyweights and lesser-cap stocks.
PETALING JAYA: Corporate earnings are set to continue recovering and registering further growth in the second half of 2023 (2H23), backed by positive economic print projected for the period.
At the same time, the country’s economy is set to retain its growth trajectory for the rest of the year with continuous support from strong households and intact fundamentals, despite various external variables influencing growth in 1H23.
Rakuten Trade Sdn Bhd equity research vice-president Thong Pak Leng said earnings growth for 1H23 is estimated to be around 6% to 7%, while 2H23 may see an 11% to 12% growth track.
“Last year, earnings declined by 10% and this year we expect it to grow within 9.3% to 9.5%.
“More companies are likely to write back provisions in 2H23, and fundamentally, things are getting better with more active economic activities happening in the country,” he told Bernama.Nevertheless, Thong said growth will vary according to sectors.
“We saw decent growth in 1H23 and blue chips were doing well during the period.
“A few sectors will do well in 2H23, namely, oil and gas, construction, plantations, banking and real estate investment trusts,” he added.
Meanwhile, in its review of the first quarter of 2023 (1Q23), MIDF Research noted that there was a divergence in net change to forward earnings between heavyweights and lesser-cap stocks.
“The divergence in the net change to aggregate forward earnings favouring non-heavyweight stocks was also duly reflected in their relative price performance thus far this year,” it said.
As of end-May 2023, the year-to-date (y-t-d) price return of the FBM KLCI stood at minus 7.2%. In contrast, the mid-cap FBM70 index registered a y-t-d return of 4.9%.
In 1Q23, the aggregate reported earnings of FBM KLCI 30 current constituents came in at RM15.8bil, declining sequentially at minus 34.7% quarter-on-quarter, but improved against 1Q22 at 3% year-on-year.
MIDF Research said the heavyweights were bogged down mainly by the price underperformance of financial services counters, which was impacted by banking turmoil in the United States and Europe, as well as commodity-related industrial products and services and plantation stocks amid lower commodity product prices.
“Nonetheless, going forward, we do not expect the underperformance of these heavyweight stocks to persist, as, firstly, the banking turmoil in the United States and Europe is a consequence of the rapid rise in interest rates during the past year.
“Secondly, we reckon the softening commodity price trend is presaging a slowdown in economic activities, which is also arguably a consequence of the rapid rise in interest rates during the past year.
“Likewise, we can expect to see some improvement in both the valuation and earnings expectation of commodity-related stocks post-US Federal Reserve pause (in rate hikes),” it said. — Bernama
