PETALING JAYA: A high proportion of companies met or exceeded earnings expectations in the first quarter of 2026 (1Q26), providing a substantial buffer against potential risks for both the 30-stock FBM KLCI and the broader market, according to Kenanga Research.
The research house said 93% of FBM KLCI constituents under its coverage either met or beat forecasts during the quarter, well above the four-quarter average of 80%.
Across its broader universe of about 130 stocks, 74% met or exceeded expectations, compared with an average of 70% in the last four quarters, it said.
“This acts as a strong buffer to earnings as we observe that many have also sought to lock in inventory or pass on costs,” the research house said in its first-quarter report card.
Kenanga Research noted many corporates entered the year well prepared for external uncertainties, including geopolitical tensions in the Middle East and supply chain disruptions.
Plantation companies, such as Kuala Lumpur Kepong Bhd
, SD Guthrie Bhd and TSH Resources Bhd, for example, have locked in fertiliser costs for the remainder of the year, while some consumer companies have selectively absorbed cost increases rather than immediately raising prices.
However, the research house cautioned that some sectors, such as technology, pharmaceuticals and packaging manufacturers, generally have not adjusted inventory strategies significantly, leaving them more exposed should supply disruptions persist.
Its base case assumes conditions normalise by 3Q26, including the possible reopening of the Strait of Hormuz.
While the earnings season was broadly positive, Kenanga Research said it has become more selective in sectors that have enjoyed strong share price gains.
It noted the technology and oil and gas sectors had the highest number of earnings disappointments and estimate downgrades.
“If judging purely by the proportion of misses by sector, this remained pronounced in the tech sector still, which reported an equal split between companies that delivered in-line results versus those that missed.
“The oil and gas sector, coming in a close second, was only slightly better,” it said.
The research house downgraded Petronas Chemicals Group Bhd (PetChem) to a “market perform”.
The research house noted that the stock is “priced to perfection” and faces longer-term supply-demand risks as Middle Eastern production normalises and additional Chinese petrochemical capacity enters the market.
Nevertheless, Kenanga Research remains constructive on selected technology names linked to artificial intelligence (AI) demand, including Frontken Corp Bhd and Kelington Group Bhd, citing continued strength in automation and semiconductor-related investments.
Kenanga Research raised its year-end FBM KLCI target slightly to 1,770 from 1,760, while forecasting earnings growth of about 8.5% in 2026.
Excluding the sharp earnings recovery expected from PetChem, the benchmark index would still deliver a respectable earnings growth rate of about 4.3% to 4.8%, the research house said, underscoring the actual resilience of the broader market.
“With regard to a base case of assuming the Middle East tensions and oil price risk from the supply side starting to fade by 3Q26, this anchors our view there is not much changed with regard to the multiple of 16 times which we have ascribed to our blended 2026/2027 earnings per share, to arrive at a year end target of 1,770.”
