PETALING JAYA: A slowdown in earnings delivery is anticipated in the coming third- quarter (3Q26) reporting season, although technology exporters and businesses supporting data centre (DC) expansion could provide pockets of strength.
Rising material costs, pressure on household spending and higher financing costs are expected to weigh on several domestic sectors, with analysts differing over how widely the weakness will spread across corporate Malaysia.
Tradeview Capital chief executive officer and founder Ng Zhu Hann expects a generally weaker reporting season, identifying consumer discretionary and construction companies as particularly vulnerable to cost pressures.
“I think the 3Q will be weaker and the consumer discretionary sector will be affected. The construction sector also due to margin compression, as the cost of materials has increased a lot,” he told StarBiz.
“These are cement, steel and copper, anything that’s related – all went up by 10% to 20%. Inflationary pressures are real.”
Ng said the implications extended beyond immediate profit margins, with developers and companies becoming more cautious about committing to new projects.
“Property development is seen as pushed back and new construction order books declined as companies are delaying launches and tenders. These two sectors will be badly hit,” he said.
The combination points to pressure on both current earnings and future activity. Higher input prices could reduce returns on ongoing work, while delayed launches and tenders could slow the replenishment of construction order books.
Ng, nevertheless, expects technology and semiconductor companies to remain resilient on growth, supported by orders flowing through international production networks.
“But technology and semiconductor companies will do well. They are to benefit from earnings flow driven by sound order books within global semiconductor value chains,” he said.
“Those involved in DCs will be doing well. Apart from these two, most sectors will see a weaker reporting season for the 3Q,” Ng noted.
This suggests investors will have to distinguish companies with exposure to global technology spending from those depending more heavily on domestic consumption and project activity.
Ng said market conditions had already weakened across numerous sectors, with foreign selling contributing to the decline in share prices.
“Share prices have come down for quite a lot of sectors. There was a sell-off seen across the board by foreign funds due largely to interest rate hikes,” he said.
He linked the selling to the rise in yields in the United States and Japanese government bond markets.
However, Ng cautioned that enthusiasm surrounding artificial intelligence (AI) also faced questions about the sustainability of investment spending.
“Some also see the AI play as a bit overstretched now, especially whether they can continue the high capital expenditure,” he said. “While the banks are impacted from higher bond yields, bond prices have come down, so fixed income has come down,” he added.
Ng sees limited immediate scope for a turnaround in sentiment, with the geopolitical backdrop remaining central to his outlook. “I don’t see any positive news flow in the near term for the next quarter. The only way things can look better is if the US-Iran war ends and oil prices normalise again,” he said.
BIMB Securities director of research Mohd Redza Abdul Rahman, however, expects a more divided earnings picture, with export-oriented industries offsetting pressures in businesses serving the domestic market.
“Corporate Malaysia is not sliding into a broad slowdown. However, 3Q26 will mark an export-anchored divergence, where global tech demand and US dollar revenue realisation mask localised margin tightness in purely domestic consumer industries,” he said.
Mohd Redza identified electrical and electronics (E&E) companies as the principal earnings driver, supported by AI infrastructure investment and advanced chip packaging.
“E&E shipments surged 69.2% year-on-year in September 2026 to hit a monthly record of RM110.23bil, capturing over 51% of total national exports,” he said.
“High capacity utilisation coupled with US dollar-ringgit translation gains provides outsourced semiconductor assembly and test and automated test equipment providers with top-line growth and expanding operating margins,” Mohd Redza added.
He also sees opportunities among precision engineering and optical equipment manufacturers benefiting from changes in global supply chains.
“Precision tooling, industrial machinery and optical/scientific apparatus manufacturers are directly benefiting from global supply chain realignment and elevated capital expenditure deployment across East Asia and North America, securing high-margin US dollar cash flows,” he said.
Mohd Redza pointed to September export growth of 38.4% for industrial machinery and 43.2% for optical and scientific apparatus as evidence of that strength.
He is also more upbeat on the construction sector.
“Order books remain insulated from external cycles. Accelerated execution across national master plans, major public civil projects, hyperscale DC developments in Johor and Selangor, and industrial park expansions provide clear multi-quarter earnings visibility,” he said.
The benefits could extend to companies supplying the infrastructure required to support those investments.
“Power, water and grid infrastructure providers benefit from structural, non-cyclical demand growth as Malaysia cements its status as a regional data centre and technology infrastructure hub,” Mohd Redza said.
On potential weakness, he said plantation companies may be affected, noting that agricultural exports contracted 9.1% year-on-year to RM6.77bil in September
“Upstream palm oil producers face earnings pressure relative to manufacturing exporters,” he said, pointing out lower export volumes and high labour overheads as constraints on bottom-line growth.
Import-dependent consumer businesses could also struggle to protect margins while preserving sales volumes.
“Retailers and consumer goods operators heavily reliant on imported raw material inputs or finished inventory in US dollars face direct gross margin compression. Passing these higher costs through to price-sensitive local consumers remains difficult without triggering volume demand erosion,” Mohd Redza said.
Airlines and logistics operators face similar currency-related pressures through aircraft leases, international port charges and fuel expenses, he added.
Meanwhile, Mohd Redza also expects challenges for automotive distributors competing in a market characterised by heavy discounting.
“Distributors dependent on imported completely built-up or completely knocked-down kits encounter higher imported component costs in a crowded, discount-heavy domestic car market,” he said.
