PETALING JAYA: Corporate Malaysia’s second-quarter earnings season was generally in line with market expectations, with the foreign investors’ favourite banking sector being the bright spot in profit delivery.
Analysts anticipate local listed companies’ profit momentum to pick up further in the third quarter of 2024 (3Q24), supported by strong economic growth, optimism among manufacturers and a sustained recovery in exports.
Kenny Yee, head of research at Rakuten Trade, told StarBiz that the 2Q24 earnings season saw “more positives than negatives”.
“In fact, the overall reported results were slightly better than expected in 2Q24. There were no major disappointments in terms of sector,” he said.
Mohd Redza Abdul Rahman, former head of research for a local investment bank, said that while not many earnings surprises were seen in 2Q24, investors must “read between the lines”.
“Economic recovery has resulted in double-digit earnings growth for many of the companies across various sectors.
“It’s just that for some blue-chip companies, consensus forecasts have been too optimistic, resulting in their results coming in slightly within expectations despite good earnings growth.”
An analysis by StarBiz showed that 19 out of the 30 FBM KLCI component stocks delivered higher net income in 2Q24 as compared to Bloomberg’s mean estimate.
Meanwhile, based on data provided by CIMB Securities Research up until Aug 28, four out of 18 FBM KLCI stocks delivered earnings above consensus forecasts for 2Q24.
Earnings of eight stocks were in line with expectations, while six failed to meet estimates.
The 2Q24 results season concluded on Aug 30.
On the broader Bursa Malaysia, of the 73 companies tracked up until Aug 28, CIMB Securities Research said about 23% posted results that were above expectations.
A total of 25% companies reported results that were below expectations, and 52% reported results that were in line with expectations.
“This results in an earnings revision ratio (the percentage of companies with earnings above expectations compared to those below) of 0.92 times, which is lower than the 1.4 times ratio achieved during the 1Q24 results season.
“The key reason for this lower ratio is the higher number of companies that underperformed our expectations,” stated the research house in a preliminary report yesterday.
It further noted that all the technology companies under its coverage posted 2Q24 results that were below expectations, primarily due to a lower-than-expected utilisation rate and profit margins.
CIMB Securities Research covers five technology stocks, namely, Inari Amertron Bhd
, Malaysian Pacific Industries Bhd, Unisem (M) Bhd, Vitrox Corp Bhd and CTOS Digital Bhd.
In the case of CTOS, results were below expectations on the back of lower-than-expected contributions from its associates.
“The slower-than-expected earnings recovery in the technology sector, coupled with the stronger ringgit, has partially contributed to the recent correction in the technology index,” said CIMB Securities Research.
The technology stock sell-off on Bursa Malaysia has continued for more than a month since mid-July. The outlook also appears muted and analysts are not pinning hopes for a rebound in the immediate term.
The Technology Index of Bursa Malaysia has declined by about 20% since mid-July.
Commenting on the banking sector, CIMB Securities Research called it a “key bright spot” in the 2Q24 earnings season.
Of the five banks that had reported results until Aug 28, four exceeded expectations. The banks were Malayan Banking Bhd (Maybank), RHB Bank Bhd, AMMB Holdings Bhd and Public Bank Bhd.
“Maybank’s results were stronger-than-expected due to higher non-interest income and more benign loan loss provisions. RHB Bank’s results were also above expectations, driven by stronger non-interest income from its treasury division.
“AMMB Holdings outperformed due to better-than-expected non-interest income and lower credit costs.
“Public Bank also reported better-than-expected earnings, mainly due to the write-back of loan loss provisions.
“Overall, we have raised our earnings forecasts for banks across the board during the second-quarter earnings season to reflect lower cost of funds projections,” it said.
It is worth noting that foreign investors have been accumulating banking shares amid improved earnings visibility. This has, in turn, fuelled the FBM KLCI’s rally, pushing the index into a bull market.
In the week ended Aug 30, the top-five stocks with highest weekly net inflows were all banks.
Public Bank led the list with a net foreign fund inflow of RM458.3mil, according to MIDF Research.
Apart from banks, Rakuten Trade’s Yee said plantation players reported good results. Earnings of utility companies were also better-than-expected, he added.
“Telecommunication sector was decent, while construction earnings were in line.
“As for the technology sector, overall earnings were mixed,” said Yee.
Meanwhile, Mohd Redza noted that retail related sectors did quite well, with mall owners seeing higher net property income from higher footfalls and spending.
“Despite positive retail spending, consumer products and retailers’ segments have little to brag about with boycotts of selected foreign brands and differing consumer preferences continue to dampen their first-half of 2024 earnings and likely so for the foreseeable future.
“A stronger economic growth naturally underpins a stronger performance of the financial services sector including banks and Bursa Malaysia, with decent net interest income performance and stronger market velocity respectively overcoming pressure from overhead expenses.
“In addition, amid the slew of announcements of land sales especially coming from data centre deals, property companies saw a big bump in their earnings, resulting in considerable outperforming for major listed property companies,” he said.
Looking ahead, the ringgit’s strengthening will feature strongly in the earnings of exporters, suggested Mohd Redza.
However, for oil palm planters, the stronger ringgit could slightly affect their future earnings growth, along with a bumper recovery of soy oil production - a key rival for palm oil.
The impact will be felt despite the recovery seen in crude palm oil prices to around RM4,000 per tonne.
Mohd Redza also said the decrease in cost would provide some relief to companies with high raw materials export content and with relatively high value-added content.
“Sectors to benefit are manufacturing, industrial and technology.
“Thematic stories such as data centres and net zero transitions, will likely be kind to the construction sector moving forward, with favourable margin recovery and potential new contract wins.
“This should provide some cushion on their earnings over the next few years,” according to Mohd Redza.
Overall, Rakuten Trade’s Yee expects corporate Malaysia’s earnings growth in 2024 to be better than previously expected.
This is based on the expectations of improved earnings in the second half of this year.
