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PETALING JAYA: Analysts and fund managers are cautiously hopeful about the performance of corporate Malaysia for the first quarter of 2023 (1Q23).
Their views are balanced between macroeconomic factors such as the reopening of China as well as geopolitical and trade conflicts especially between the republic and the United States.
This month is when companies on the FBM KLCI will release their financial results, particularly for firms whose first fiscal quarter ended on March 31.
While experts have been forming the consensus that Malaysia is unlikely to experience a recession, they expect the country’s economic growth to go through a mild slowdown in 2023.
As such, 1Q23 corporate results could be a barometer as to whether Malaysia’s forecast downtrend for the year would be as modest as anticipated, or if it would outperform expectations.
Chief investment officer for Tradeview Capital Nixon Wong said while China’s reopening since end-2022 had been slower than expected, there are some positive factors for Malaysia.
Despite the industrial output of China being lower than anticipated, it is showing an upward trend, while recent gross domestic product and retail sales having exceeded expectations.
“This supports the idea that China’s recovery is ongoing albeit slower than anticipated and Malaysia stands to benefit from it in the long-term,” he told StarBiz.
However, Wong said he is not expecting to see significant benefits for Malaysian corporate earnings in 1Q and 2Q, but is hoping for a stronger recovery to take place in the second half of the year (2H23).
“Sectors that may benefit from this recovery include consumer goods, tourism, commodities, and technology.
“For 1Q23, I believe we are still likely to see mediocre corporate results,” he said.
Chief executive for asset management company abrdn Islamic Malaysia Sdn Bhd Gerald Ambrose is also of the opinion that leisure-related companies will benefit and see improved performances as he is confident that the return of Chinese tourists will be imminent.
Additionally, he said several multinational corporations with presence in both China and Malaysia have also increased their percentage of production in Malaysia to avoid the US-China trade conflict, with most of them located in Penang.
At the same time, Ambrose said China’s demand for global commodities should also grow, which would in turn benefit plantation companies on the local stock market especially those with downstream operations.
Adopting a more cautious tone, however, he said: “Brokers tend to be optimistic, especially in the beginning of the year, but inevitably earnings forecasts do get downgraded as the quarters roll on.
“We believe 2023 will not be an exception, as the slowing off in global trade does not augur well for an open economy like Malaysia.”
On the other hand, he pointed out that a 4% growth in market earnings-per-share looks achievable for the FBM KLCI, which would make it competitive against other bourses.
“This is particularly true when it puts the Malaysian market on a price-earnings ratio of 12.5 times 2023 earnings and 1.3 times price-to-book ratio, which is below its 20 year average,” he explained.
Ambrose said his firm had invested in the FBM KLCI on the principle that a company’s fundamentals would one day be reflected in its share price.
Meanwhile, KAF Research senior analyst Mak Hoy Ken said the outlook for the construction sector is still tepid due to the lack of job flows, at least until private finance initiative-related bids start coming through.
“Likewise, construction earnings are likely to remain muted in the near term. Having said that, foreign direct investment-related flows from new data centres and industrial parks could provide a new avenue for job replenishments, although the efforts would also take time to materialise,” he said.
Although sentiment appeared subdued in the jobs-intensive construction sector, Mak said his top picks are Gamuda Bhd
and Muhibbah Engineering Bhd.
He said the companies have noteworthy overseas exposure, with the latter being a shareholder in Sociate Concessionaire de A’ Aeroport, the association that holds the concession in three international Cambodia airports, while the former has projects in various countries including Australia, Vietnam and the United Kingdom.
Commenting on the building materials sector, he said: “We also like Malayan Cement Bhd and Ann Joo Resources Bhd at present, especially since the price of coal has come off its recent peak, implying that Malayan Cement could see better cost management.
“Also, if China’s recovery continues at pace – since it is a major determinant in global steel prices – this could also be an obvious positive factor for Ann Joo Resources.”
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