PETALING JAYA: Malaysian corporate earnings remain broadly on track to deliver 7% to 8% growth forecast for this year, following a generally better-than-expected second-quarter (2Q) results season, although investors may need to be more selective as valuations catch up with earnings.
Areca Capital Sdn Bhd chief investment officer Ch’ng Cheng Siew said the earnings growth target remained achievable for the FBM KLCI, although the benchmark should not be used as a direct proxy for corporate Malaysia given its heavy exposure to financials and traditional sectors.
“What is more encouraging to us is the bottom-up picture. Across our coverage, most companies delivered within or above our expectations, with relatively few downside surprises,” she told StarBiz.
Ch’ng said this had resulted in sharp post-results rallies in some counters as the market played catch-up with earnings.
“But when prices catch up too quickly, an earnings surprise can become a valuation risk,” she said.
“So, we remain constructive on earnings, but increasingly disciplined on price. For the second half (2H) of 2026, the opportunity is not simply to find good earnings, but to find where earnings expectations can still move higher and the share price has not already priced it in.”
She expects earnings visibility to remain reasonably good in the 3Q, with business activity in the first two months of the quarter remaining encouraging based on the fund manager’s ground checks.
“The more important test will be the final quarter. By then, external factors could play a much bigger role, including geopolitics, the Federal Reserve’s interest rate path, the US dollar and the sustainability of the global artificial intelligence (AI) capital expenditure (capex) cycle.”
Ch’ng said Areca is closely watching Nvidia and US hyperscalers’ capex and forward guidance, as any changes in spending expectations could have second-order effects on the semiconductor and data centre (DC) supply chain.
She also said Areca is closely monitoring China, where the economic recovery remained uneven despite some encouraging indicators.
She noted China’s economic data, policy response and progress in AI development would be important to watch, while the direction of the US dollar and global trade would also have implications for export-oriented Malaysia.
“Therefore, our view is that 3Q earnings visibility looks reasonably good, but the 4Q will be the real test,” she said.
Against this backdrop, Ch’ng said investors should focus increasingly on earnings and valuations rather than simply chasing prevailing market themes.
“We think the 1H was about getting the theme right; the 2H is about getting the earnings and valuation right,” she said.
“We remain invested in structural growth areas, but with greater discipline on valuations and a preference for companies where earnings expectations still have room to move higher.”
Tradeview Capital Sdn Bhd portfolio manager Neoh Jia Man said the latest data showed earnings per share growth for FBM KLCI constituents had dipped 6.2% year-on-year in the 1H of 2026.
However, he said the decline was largely within market expectations, with analysts having factored in the temporary impact of geopolitical uncertainty in the Middle East and expecting earnings growth to pick up in the 2H.
Neoh said the 2Q earnings season was mixed, with transportation emerging as the strongest-performing sector, supported by higher port tariffs and elevated vessel day rates amid the Middle East conflict.
“Most other sectors were delivering just in-line performance, with notable disappointments among the oil and gas (O&G) and consumer names,” he said.
Looking ahead, Neoh expects earnings momentum to improve among construction, plantation and consumer companies.
He said construction players could benefit from easing fuel costs, while plantation companies could gain from firmer crude palm oil prices.
Meanwhile, he said consumer companies could benefit from a potential increase in government handouts. In contrast, he is less positive on the automotive, rubber glove and transportation sectors, where normalisation in commodity prices and front-loaded demand could weigh on sales and lead to operating deleverage.
For the 2H, Neoh expects corporate earnings growth to pick up, particularly among non-commodity-driven sectors, supported by easing energy costs and an acceleration in construction activity.
He added political uncertainty remained the biggest risk, while the upcoming Budget 2027 could provide a boost to domestic consumption and capital investment.
Meanwhile, Ch’ng said Areca continued to favour selected companies along the AI-to-infrastructure value chain, particularly in technology, utilities, renewable energy and construction.
However, after the strong re-rating in these sectors, the fund manager has become more valuation-sensitive.
“We prefer companies where capex is already translating into orders, utilisation and earnings, rather than simply buying the theme,” she said.
Some believe investors should look beyond the recent AI stock pullback, with Malaysia expected to benefit from the long-term AI infrastructure buildout.
BNP Paribas Asset Management senior portfolio manager, Asia and global emerging markets equities, Roxy Wong said the recent pullback presents an opportunity despite macro concerns over interest rates and inflation.
While there are uncertainties over the sustainability of US hyperscalers’ capex, Wong does not anticipate any major challenges over the coming 12 months for AI-related stocks.
Wong pointed to Nvidia’s 70% year-on-year (y-o-y) revenue growth forecast as evidence that strong AI chip demand is driving continued AI infrastructure spending.
Last week, Nvidia’s quarterly revenue more than doubled and it forecast 3Q revenue above Wall Street estimates, signalling sustained strong demand for AI chips.
This follows expectations that Big Tech will spend more than US$730bil on AI infrastructure this year, up sharply from US$400bil spent last year.
Wong added investors shouldn’t be distracted by every tariff announcement or geopolitical headline.
Instead, Wong’s broader narrative pointed to investing in companies that have structural exposure to the long-term expansion of AI infrastructure.
“We only focus on companies that can benefit from the long-term trend where the AI infrastructure builds would lead to both unit increase and specifications upgrades,” he said.
“This can help companies in the supply chain benefit from both unit and price increases, with some margin improvements too,” Wong told StarBiz.
He noted Malaysia is on track to benefit from the regional AI DC buildout, given its abundant land supply and low energy costs.
He explained the AI-theme extends into the wider economy as AI infrastructure builds is a long-term theme.
“It has the potential to enlarge to some other sub-segments in the economy other than just technology companies,” he highlighted.
Wong of BNP Paribas said investors should view AI as a long-term theme that will eventually become an essential part of everyday life, much like mobile networks today.
Against that backdrop, he noted infrastructure builds and upgrades would become normal on an on-going basis.
Wong also warns that once AI infrastructure supply catches up with demand, companies without a durable competitive advantage could face sharp earnings downgrades.
“We must be very careful with companies that only benefit from price increase without much competitive edge among its peers.
“These are the companies that may see huge earnings downgrades (due to price decline) even as infrastructure builds continue,” he explained.
Generally, Bursa Malaysia’s technology companies’ delivered better results in their recent 2Q performance supported by the semiconductor recovery and continued AI-related demand, according to BNP Paribas Asset Management head of Asean equities Ernest Chew.
“We expect earnings momentum to remain positive for the rest of the year, although performance will likely be more stock-specific,” he said.
At the same time, Ch’ng sees opportunities beyond the crowded AI and DC trade, particularly among companies with proven business models, strong execution and sustainable earnings growth that had been overlooked by investors.
“Many good companies with proven business models, strong execution track records and sustainable long-term growth have been relatively overlooked as capital crowded into the dominant themes,” she said.
“Some are now trading at attractive valuations despite continuing to deliver steady earnings growth.”
She also identified selected O&G companies as a contrarian opportunity, citing renewed focus on energy security and supply diversification.
“We may be early, so we prefer companies with strong execution track records, healthy balance sheets, undemanding valuations and dividend yields of more than 6%,” she said.
“So, our strategy is increasingly two-pronged – stay with structural winners where earnings justify the valuation, while selectively accumulating overlooked quality companies where fundamentals remain strong but market attention has moved elsewhere.”
