PETALING JAYA: Analysts are generally of the opinion that corporate Malaysia’s results for the second quarter of 2023 (2Q23) are largely in line with expectations, particularly after what some saw as a lacklustre 1Q23.

Presenting matters from a wider perspective, Kenanga Investment Bank Research said power companies had felt the pinch from high-cost coal inventories, while planters and steel players bore the brunt of low commodity prices.

It said many companies have had to confront slowing domestic demand and exports amid a global economic slowdown while operating costs had stayed elevated.

“Three FBM KLCI component stocks under our coverage beat our projections, namely Sime Darby Bhd, Sime Darby Plantations Bhd and Telekom Malaysia Bhd.

“On the other hand, among the stocks under our coverage that missed our projections are AMMB Holdings Bhd due to higher credit costs, Axiata Group Bhd, Dialog Group Bhd and Genting Malaysia Bhd,” it said.

In particular, high-cost coal inventory, weak commodity prices, a pullback in domestic consumption and spending as well as a slowdown in exports were touted by Kenanga Research as reasons some companies under its coverage missed 2Q23 earnings forecasts.

It said with the completion of the state elections last month, investors would be refocusing their attention on global macroeconomic issues, such the rate policies of the US Federal Reserve (Fed) and how the Chinese government would be handling the floundering shadow banking and real estate sectors in the country.

It said the earnings resilience of banks and telecommunication companies (telcos) means major players in these sectors would continue to offer value, especially as telcos are also poised for further re-rating when the rollout of the market-driven Dual Network 5G model is firmed up.

Meanwhile, TA Research reported that out of the 107 Bursa Malaysia companies under its coverage, 56 firms especially from the banking, construction, consumer, healthcare, property, telecommunications and transportation sectors, had met its earnings targets, while 32 companies showed less desirable results.

For example, it said lower palm oil prices and higher operating costs have dimmed the 2Q23 performance of the plantation sector, while dampening demand for electronics amid global uncertainties contributed to the declining performance of the technology segment.

On the flipside, the research unit opined that higher income, driven by the near-doubling of non-interest income to RM5.6bil, have improved bank’s earnings, with the aviation sector’s recovery gaining strength following the country’s full border reopening in April 2022.

“In 2023, we foresee sustained expansion in the domestic economy, which is expected to drive earnings growth in sectors including automotive, banking, building materials, construction, consumer, gaming, insurance, media, property, power and utilities, telecommunications as well as transportation,” it said.

Despite acknowledging the results of the banking sector – which it sees as a bellwether – were mostly in line, with asset quality data remaining solid, RHB Research said some other large-capital component stocks under its coverage did worse quarter-on-quarter after 37% of companies reported disappointing results in the quarter.

According to the research firm, some key risks for Malaysian equities include a weak ringgit against the US dollar, slower-than-expected pace of economic recovery in China and dry corporate profitability.

Looking at the brighter side, it said re-rating catalysts would include the pace of implementation of the unity government’s reform agenda, gradual improvements in the global macroeconomic outlook and clearer evidence that the tightening of the Fed’s monetary policy has run its course.

“While a core defensive stance is still preferred, market weakness should be seen as opportunities to gradually deploy cash hoards to add to equity positions,” it said.

Kenanga Research and RHB Research are expecting 2024 to post improved corporate earnings growth rates compared to this year, while keeping their end-2023 FBM KLCI target of 1,540 and 1,500, respectively.

Concurrently, TA Research is holding on to its year-end forecast of 1,515 for the local benchmark, reckoning that market sentiment will remain fragile in the near-term due to external factors but gradual improvement is anticipated towards the final quarter that could pave way for greater upside in 2024.