PETALING JAYA: With pockets of positive surprises, the July-to-September 2023 results season offers an indication of improved quarters ahead, despite lingering questions about Corporate Malaysia’s earnings momentum.
More listed companies reported higher-than-expected earnings in the third quarter of 2023 (3Q23), although the larger market’s performance was mainly in line with street predictions.
UOB Kay Hian Research said positive surprises more than doubled in 3Q23, with “19% of our coverage beating expectations”. About 51% of stocks were within forecast.
Meanwhile, Kenanga Research said an “encouraging” eight or 29% of FBM KLCI component stocks under its coverage surpassed its projections. About 43% of stocks were within expectations.
Fund manager Danny Wong, while noting that the latest results season was mainly as expected, told StarBiz that a number of sectors had performed positively in 3Q23.
These include the automotive, plantation, numbers forecast operator (NFO) and gaming as well as property sectors.
“Selected names of technology and glove players also provided positive upside surprises in 3Q23,” he said.
Wong, who is the chief executive officer of Areca Capital, is “quite bullish” on Corporate Malaysia’s outlook for the next one to two quarters.
This is considering the United States’ decision to continue pausing its interest rates, which Wong said will be a “confidence booster” for investors to pump money into the market, including Malaysia.
The move to hold interest rates is a strong signal that the Federal Reserve (Fed) is possibly ending its monetary tightening.
A cut in the US rates will be a further positive for the global market.
On the semiconductor sector, Wong said that the downcycle had already bottomed out and that the outlook is increasingly positive with more technology companies launching new models.
“Malaysian tourism players will benefit from the recent decision to allow 30-day visa-free travel to tourists from India and China.
“Banking stocks will continue to do well as they are the proxies to economic growth, supported by good loan growth,” he said.
For the 3Q23 results season, Wong noted that banks performed positively as expected, thanks to lower provisions that had previously dragged down earnings.
“Tourism and airline players saw a recovery in earnings and the recovery theme will continue into next year. Overall, some sectors have recovered faster than others because they managed their costs well.
“The consumer sector, however, was disappointing due to the cost factor that continued to dampen earnings,” according to Wong.
In a note, Kenanga Research also mentioned that cost pressures had weighed down on earnings across sectors in 3Q23.
“This is not surprising given the rising energy, personnel and input costs.
“What surprises us is, this time around, certain companies actually benefited from the easing of cost pressures, predominantly planters due to lower fertiliser cost and glove makers as latex and nitrile butadiene rubber costs eased.
“A number of companies were hit by disappointing business volumes in terms of sales volumes, orders, progress billings and advertising expenditures,” it said.
On a brighter note, Kenanga Research said stronger-than-expected business volumes were reported by port operators in terms of cargo throughput and oil and gas (O&G) support service providers in terms of work orders.
Post-3Q23 results season, the brokerage projected FBM KLCI earnings to contract slightly more by 4.5% in 2023, as compared to a 4% decline predicted earlier. However, for 2024, a higher growth of 12.6% is expected from 10.5% previously. This is owing to a slightly lower base in 2023.
RHB Research head of regional equity research Alexander Chia commented that the 3Q23 results pointed to a better period, with the majority of results being in line – relative to the trainwrecks seen in the two immediately preceding quarters.
While five sectors chalked lower-than-estimated numbers, this was offset by four sectors beating expectations, he added.
The automotive, plantation, NFO and property sectors beat expectations while the media, construction, utility, rubber products and basic materials sectors disappointed, marking an improvement from the six sector misses and just one “beat” in the June 2023 quarter.
“While earnings revisions remained negative, these were 2023-centric and largely from the O&G and utility sectors.
“Notwithstanding any shocks in the remaining weeks of 2023, our longstanding end-2023 FBM KLCI target of 1,500 points looks attainable,” he said.
However, Chia cautioned that the resiliency of corporate earnings going forward remains in question.
Meanwhile, MIDF Research said that the aggregate reported earnings of the FBM KLCI 30 current constituents came in at RM16.5bil in 3Q23.
The earnings increased sequentially at 16.6% quarter-on-quarter (q-o-q) and 0.7% year-on-year (y-o-y).
On an adjusted basis, the aggregate 3Q23 normalised earnings of the FBM KLCI 30 current constituents rose sequentially at 4.1% q-o-q, but declined on-year at 7.7% y-o-y to RM16.3bil.
“The positive q-o-q normalised growth performance in 3Q23 was mainly contributed by earnings improvement among FBM KLCI’s financial services (Hong Leong Bank Bhd, AMMB Holdings Bhd and Hong Leong Financial Group Bhd), consumer products and services (Genting Malaysia Bhd and Genting Bhd), and telecommunications (Axiata Group Bhd and CelcomDigi Bhd) constituents,” it said.
Looking ahead, MIDF Research slashed the aggregate 2023 and 2024 earnings of the FBM KLCI constituents under its coverage by 3.3% to RM58.3bil and 2% to RM64bil, respectively.
Meanwhile, the aggregate 2023 and 2024 earnings of the stocks under the larger MIDF universe were cut by 2.7% to RM74.9bil and raised by 1.8% to RM86bil, respectively.
“Nonetheless, we maintain both our end-2023 FBM KLCI and FBM70 targets at 1,540 and 14,500 points, respectively.
“This is due to increasingly positive market sentiment engendered by the cessation of the Fed’s rate hike and supported by attractive FBM KLCI and still undemanding FBM70 valuations,” it added.