PETALING JAYA: Corporate Malaysia saw a “wide breadth of disappointments” in the recently concluded fourth-quarter earnings season, with one-third of FBM KLCI companies missing market predictions.
The mixed bag of results influenced some analysts to trim their forecasts for 2024, but despite the tweaks, at least five brokerages anticipate this year’s corporate earnings to jump by mid to high-teens.
It is, however, noteworthy that the 2024 earnings growth of FBM KLCI stocks could be dwarfed by the growth in key neighbouring countries.
AmInvestment Bank Research noted that the Bloomberg consensus 2024 FBM KLCI earnings growth is only 3.7% currently.
“We caution that Bloomberg’s estimates may not yet have fully accounted for all analysts’ earnings revisions.
“Even so, based on our more sanguine 2024 corporate earnings growth for the FBM KLCI, Malaysia is dwarfed by Bloomberg’s estimate of 33% for Indonesia, 43% for Vietnam, 18% for the Philippines and 14% for Thailand,” it said.
AmInvestment Bank Research projects the FBM KLCI’s core net profit in 2024 to grow by 13.4%, as compared to its earlier forecast of 14.7%.
UOB Kay Hian (UOBKH) Research, meanwhile, forecast a growth of 11.4% in 2024 for the FBM KLCI’s earnings.
As for its coverage universe, UOBKH Research expects a higher earnings growth of 17.2%.
“While the fourth quarter of 2023 (4Q23) results season continued to feature a wide breadth of disappointments, we marginally raised our 2024 earnings forecast for the FBM KLCI.
“We retain our bullish market view, underpinned by expectations of an easing US interest rate cycle and the accompanying prospectively stronger ringgit, the country’s progressive business policies, and significant corporate earnings recovery.
“Notable downgrades (for 2024) were the electronics manufacturing services (EMS) and semiconductor subsectors of technology, gloves and plantations.
“Earnings upgrades were scattered with aviation, automobiles and software being the most prevalent sectors,” according to UOBKH Research.
Looking ahead, the research house is “overweight” on the gaming, technology, construction and building materials sectors. It said selected property stocks should continue to outperform.
“However, sectors which would likely languish include glove manufacturers,” it added.
UOBKH Research recommended investors to be on a “risk-on” mode.
“Capitalise on timely investment themes such as Iskandar 2.0, global semiconductor cycle recovery, blockchain, China-related themes and opportunities in the oil and gas (O&G) and plantation sectors.
“Peering into 2Q24, investment sentiment should be focusing on the first US policy rate cut, China’s cyclical demand recovery and the potential visit to Malaysia by China president Xi Jinping,” it said.
In a separate note, Kenanga Research raised its FBM KLCI earnings growth forecast for 2024 to 16.3% from 14.4%.
The upward revision was largely due to the low-base effect as the actual earnings for 2023 came in slightly lower than Kenanga Research’s forecast.
“Policy easing in advanced economies will also set in motion a more synchronised global economic recovery, fuelling an export boom in the largely still export-dependent emerging market economies.
“We expect the local market to lift off in a way likened to a rocket propelled by three booster engines in succession.
“We will tactically first position ourselves as beneficiaries of public spending, gradually also gravitating towards the tech and EMS sectors.
“We expect consumer spending to get softer before it gets stronger as it takes time for consumers to ‘internalise’ subsidy rationalisation,” it said.
Commenting on the 4Q23 results season, Kenanga Research pointed out that FBM KLCI component stocks reported less positive earnings surprises as compared with three months earlier.
The slowdown in consumer demand both locally and globally, coupled with the prolonged geo-political tensions in the Middle East, particularly the escalating conflict in the Red Sea, were headwinds to earnings.
On a brighter note, it said the easing in operating costs, particularly personnel cost, and improved pricing power buoyed earnings of O&G support services providers, while technology players guided for an upbeat outlook for 1Q24.
Kenanga Research also noted that 10 out of 30 FBM KLCI stocks reported 4Q23 results that were below consensus forecasts. Half of the index constituents – or 15 companies – reported earnings that were in line with expectations.
Meanwhile, CGS International Research (CGSI) called the 4Q23 earnings season “another good one”, with strong growth coming through mainly from domestic sectors and limited overall earnings changes.
It further noted that overall market earnings were flat in 2023, but were up 16% after removing distortions caused by the plantations, petrochemicals and gloves sectors.
“We estimate that revenue grew by 5.2% year-on-year (y-o-y) in 4Q23 (from 5.8% in 3Q23) and normalised net profit rose by 6.2% (4.3% y-o-y in 3Q23) for our coverage universe of over 100 companies.
“Margins eased a bit due to seasonal trends and we think topline expansion was helped by price increases and a robust domestic economy.
“While revenues were up 6% for 2023, normalised net profit was flat,” it said.
CGSI highlighted that several sectors generated good growth in 4Q23 as well as for the full year.
These include automotive, construction, conglomerates, consumer staples, healthcare, real estate, transport, oil services, and utilities.
The drag from the average selling price declines is easing, in particular for energy and materials as well as industrial goods.
Plantation sector earnings were still down 43% y-o-y and 13% quarter-on-quarter in 4Q23, but there were clear signs of improvement in upstream operations as production improved.
Looking forward into 2024, CGSI forecasts the earnings of its coverage universe to pick up strongly by 17% and a further 9% rise in 2025.
For comparison, the earnings of the stocks under its coverage had declined in 2022 and were flattish last year.
TA Research predicts “much stronger” earnings growth in 2024 and 2025, after companies under its coverage saw their earnings dip by 0.8% in 2023.
“We are expecting an earnings growth of 17.6% and 9.3% in 2024 and 2025, respectively for stocks under our universe.
“Meanwhile, our earnings growth forecasts for KLCI component stocks are 13.1% and 6.9% versus consensus’ 18.7% and 4.9%, respectively.”
However, it is worth noting that the brokerage had cut its 2024 and 2025 earnings forecasts by 2.5% and 2.2% respectively.
“This adjustment largely reflects a shift to a more conservative stance on our assumptions, considering prevailing market uncertainties,” it said in a note.
TA Research has maintained its end-2024 KLCI target at 1,620 points, with an upside bias.
This was mainly due to the cheap ringgit drawing in greater foreign participation; the government’s pro-growth policies and greater political stability; stronger 2024 corporate earnings and the revival of the Chinese economy which would boost Malaysian exports.
“On the downside, the government back-pedalling on its reform measures, delays in the US rate cut, and worsening geopolitical tensions between China and the US, Russia and NATO members, and Israel and Hamas are seen as major dampeners that could derail the positive outlook,” stated TA Research.
