Robust earnings growth forecast for firms in 2024

CGS-CIMB Research remains constructive on equities, retaining its FBM KLCI targets of 1,550 and 1,755 for end-2023 and end-2024, respectively.

PETALING JAYA: Corporate Malaysia’s earnings momentum is seen picking up following the decent growth reported during the results season of the third quarter of 2023 (3Q23).

With that, analysts are cautiously optimistic that the FBM KLCI will have a strong finish by the end of 2023, before rising further into 2024.

Maybank Investment Bank (Maybank IB) Research, which expected a 2023 core profit expansion of 2.6% for companies under its coverage and 1.5% for local index constituent stocks, maintained its end-2023 FBM KLCI target at 1,520 points, implying 13.4 times forward earnings.

Its end-2024 FBM KLCI target stood at 1,610 based on 13.5 times forward earnings.

“Consistent with the improvement in core earnings delivery in 3Q23, the ratio of earnings misses-to-beats (vis-à-vis our forecasts) continued to trend lower at 1.3 times, compared to 2.2 times in the 2Q23 results reporting, and 3.7 times in 1Q23,” the brokerage said in its report yesterday.

It expected 2023 overall earnings growth to be impacted by two sectors – petrochemicals and plantations. Excluding these two sectors, earnings growth for 2023 could reach 15.4%, it added.

As for 2024, it estimated 15.6% growth in core earnings for its universe stocks and 11.2% for the FBM KLCI constituent stocks.

“We are cautiously optimistic into 2024, amid a stable political outlook and implementation of macro blueprints introduced in 2023. The tail-end of US monetary policy tightening is a tail-wind, while stable domestic policies, economic transformation and rising foreign direct investment momentum are the three key catalysts,” Maybank IB Research said.

CGS-CIMB Research noted while the 3Q23 results season was “solid”, significant distortions were observed in petrochemicals, plantations and glove sectors for the nine months of 2023 due to declines in the average selling prices in the respective industries.

“Excluding these distortions, the underlying momentum was strong; revenues were up 11% year-on-year (y-o-y) in 3Q23 and normalised net profit expanded by 21%,” the brokerage said in its report.

CGS-CIMB Research remained constructive on equities, retaining its FBM KLCI targets of 1,550 and 1,755 for end-2023 and end-2024, respectively.

“The valuation upside (from a depressed 13.5 times forward earnings on the FBM100 index) from a potential reversal in the strong dollar trade should not be underestimated, in our view,” it said.

“Although the timing of such a turning point remains hard to predict, we would look at easing in inflationary pressures and a further correction in US bond yields (both of which could cause a shift in the Federal Reserve’s hawkish rhetoric) as short-term triggers to watch closely,” it added.

CGS-CIMB Research upgraded its ratings for utilities, telecommunications and consumer discretionary sectors from “neutral” to “overweight”, demonstrating its conviction on the economy, underpinned by improving policy initiatives, normalising tourism and resilient private consumption.

It remained “overweight” on construction, real estate, financial services, conglomerates and healthcare.

Meanwhile, Hong Leong Investment Bank (HLIB) Research noted that for the 3Q23 results season, 48% of results of the stocks under its coverage came in within its expectations, while 27% missed and 25% exceeded forecasts.

Sectors that surprised on the upside were automotive, glove and healthcare, while results shortfalls were prevalent in media, technology and plantation.

Following the 3Q23 result performance, HLIB Research now projected the 2023 FBM KLCI earnings to decline 0.3% before expanding 8% in 2024. Its end-2023 FBM KLCI target was revised to 1,490 points from 1,530 previously, based on 15.2 times price-earnings ratio (PE). For 2024, its target stood at 1,540 based on 15.2 times PE.

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