PETALING JAYA: Corporate Malaysia’s quarterly earnings growth momentum is expected to continue in the final three months of 2023, setting the stage for a further recovery this year.
While the market foresees another mixed results season in the fourth quarter, some sectors are likely to perform better than the previous quarters despite some persisting macroeconomic challenges.
Kevin Khaw Khai Sheng, research analyst at iFAST Capital, told StarBiz that sectors such as technology and financial services will “start to shine” amid an improvement in the economy.
To put it into perspective, global semiconductor sales picked up during the second half of 2023, according to the World Semiconductor Trade Statistics.
In fact, fourth-quarter sales of US$146bil were 11.6% more than the total from the fourth quarter of 2022 (4Q22) and 8.4% higher than the total from 3Q23.
As for the month of December 2023, global semiconductor sales were recorded at US$48.6bil, an increase of 1.5% compared to November 2023.
As for the banks, loans and advances exhibited a robust growth trajectory last year, anchored by the business segment.
Notably, loan data for December revealed a pronounced month-on-month (m-o-m) acceleration, registering an uptick of 1.1%.
Consequently, the year-on-year (y-o-y) expansion reached an impressive 5.3%, predominantly attributable to the business segment, which experienced its most substantial m-o-m surge in two years, posting a noteworthy increase of 1.6%
In the household segment, all sub-segments demonstrated resilience. For the business segment, the faster expansion was propelled by increased working capital and non-residential property lending.
Beyond technology and financial services, Khaw said he is “closely monitoring” certain sectors such as construction and property.
“The construction sector will likely see stable earnings. Order books of construction players have been increasing.
“The property sector is also supported by sustained property loans.
“However, if the earnings of both sectors are not as good as expected, the market could punish them,” said Khaw, pointing out that shares of construction and property players have rallied in 2023.
The Construction Index of Bursa Malaysia surged by almost 26% last year, while the Property Index rallied even stronger by 34.5%.
“Overall, we expect the fourth-quarter results season to be quite similar to the earlier 3Q23,” said Khaw.
The 3Q23 results season offered mixed results, although earnings performance is largely in-line with Malaysia’s expanding economy, which grew by 3.3% y-o-y in 3Q23, as resilient domestic demand, offsetting continued export weakness.
BIMB Securities Research said earlier that the 3Q23 earnings were broadly in-line with expectations and indicate a slowing rate of downgrade.
“Of the 72 companies under our coverage that released financial results, 44% were in line, 26% were stronger-than-expected while the remaining 30% reported lower-than-expected results.
“Approximately 57% of FBM KLCI components reported earnings that were in line with consensus expectations, with the remainder split between ‘above and below expectations’ categories,” it said.
MIDF head of research Imran Yassin Md Yusof said it is still “early days” to predict the outcome of the 4Q23 earnings season, considering that many companies have yet to release their results.
“However, we expect earnings to come in within our expectations, whereby we expect a slight weakness in the fourth-quarter earnings, on a year-on-year basis.
“Nevertheless, we opine that the quarter-on-quarter (q-o-q) momentum from the past three quarters may continue into the fourth quarter,” he told StarBiz.When asked about sectors that may continue to underperform in 4Q23, Imran highlighted the glove sector.
“This is because the average selling prices (ASPs) of gloves may still come below than expected as a result of continued intense competition,” he said.
It is noteworthy that Hartalega Holdings Bhd
, Malaysia’s largest glove maker by market value, slipped into operating losses again in the October-December 2023 period, dragged down by a drop in glove prices and lower sales volume.
Hartalega reported an operating loss of RM7.8mil in the quarter ended Dec 31, 2023, as compared to an operating profit of RM15.9mil in the preceding quarter.
In its filing with Bursa Malaysia, the glove maker cautioned shareholders that pressure on ASPs would remain.
It also said global oversupply of rubber gloves is expected to persist, even though some smaller players are exiting the sector.
However, Hartalega also noted that it is not all doom and gloom for the glove business.
The capacity rationalisation exercises undertaken by certain key domestic manufacturers together have helped to relieve a certain degree of oversupply pressure in the market.
The glove maker also said recent demand has shown signs of improvement and is expected to normalise in the near future.
Another sector that could underperform in 4Q23 is plantations.
In a research note last week, RHB Research said the plantation sector’s fourth-quarter earnings are likely to drop q-o-q and y-o-y.
“In Malaysia, fresh fruit bunches (FFB) output of the companies under our coverage dipped by an average of 0.6% q-o-q, while spot crude palm oil (CPO) prices contracted by 2.6% q-o-q in 4Q23.
“Y-o-y, we should also see lower earnings for planters in both Malaysia and Indonesia, given the higher leverage CPO prices have on earnings versus output.
“In Malaysia, while average FFB output rose by 4.5% y-o-y in 4Q23, spot CPO prices dropped 5.8% y-o-y,” RHB Research said.
Looking ahead, the research unit has maintained its “neutral” view on the plantation sector, with a tactically positive trading strategy.
“We continue to expect a higher CPO price environment in the first half of 2024, in anticipation of a seasonally weaker output and El Nino impact.
“We continue to prefer upstream players for now,” it added.
CPO prices in Malaysia have been increasing year-to-date, reaching RM3,937 per tonne as of Feb 9.
MIDF Research’s Imran pointed out several sectors such as energy and banking that are poised to perform favourably in 2024.
“For 2024, we expect the energy sector to see improvements in earnings as some companies under our coverage return to profitability.
“Meanwhile, earnings of banks are expected to continue to be robust this year, given the stable asset quality and potential non-interest income recovery.
“One sector that could see a positive surprise could be the construction sector, should we finally get the announcement of much anticipated infrastructure projects,” he said.
iFAST’s Khaw said the year 2024 is a good time for investors to switch to “undemanding gems”.
These include technology players that would benefit as semiconductor sales bottomed out and basic material players that gain from rising construction demand.
“We are most optimistic on the technology sector, especially because semiconductor inventories are subsiding amid an increase in demand from areas such as artificial intelligence and automation.
“E-services players might also benefit from the rising digitalisation needs in the market, including from the government,” he added.
AmInvestment Bank Research, in a note last week, said FBM KLCI’s core earnings prospects in 2024 appear mixed versus regional economies.
“Our 2024 FBM KLCI earnings projections of 14.7% is driven largely by oil and gas (20%), plantation (18%), power (17%) and financial services (14%).
“Meanwhile, 2024 earnings prospects of other countries in the region have likewise recovered, with Indonesia expected to grow by 34%, Thailand 17% and the Philippines 16%.”
Vietnam’s index earnings growth is projected to surge by 49% in 2024.
“Hence, although Malaysia’s 2024 corporate earnings growth outpaces US’ 12% and UK’s flattish -0.7%, the other Asean countries’ steeper trajectories are likely to draw higher foreign investor interest,” it said.
