Although Malaysia’s quarter one 2023’s GDP result showed a resilient performance, research universe core net profit was broadly underwhelming, at -4.5% quarter-on-quarter and -0.8% year-on-year, representing a 2nd consecutive quarter of both quarter-on-quarter and year-on-year decline, said Maybank Investment Bank Bhd (Maybank IB) in a recent report.
“Key drags were Plantations and Petrochems, with Technology also stumbling, with positive offset mostly from Banks and Utilities, along with some smaller sectors,” said Maybank IB.
Ratio of misses-to-beats jumped to 3.7x, mostly due to Plantations, Consumer and Technology, while earnings downgrades-to-upgrades was a similarly bearish 7.3x.
Six stocks were upgraded, 5 of which to BUY, Carlsberg, MyEG, RCE, SP Setia, YTL Power. Eight were downgraded, of which 3 are now SELLs, Berjaya Food, Leong Hup, Bumi Armada.
“Following sizable earnings cuts for Telcos, Petrochem, Banks, Gloves and Plantations sectors, we are now forecasting, for 2023 estimate, a sharply reduced +6.5% core profit expansion for our universe and +6.2% for the KLCI,” said Maybank IB.
While most sectors are still seeing earnings expansion, key drags are Petrochem and Plantation, while Gloves will be loss-making. Re positive offsets, earnings are to expand for Banks and Utilities, Gaming (casino) earnings are to jump 6x on visitorship / capacity normalization and Aviation will approach breakeven.
Ex-Gloves, research universe earnings growth is at +8.5% for 2023 estimate and +12.8% for 2024 estimate. Per broadly downbeat company guidance, earnings risk is to the downside given a combination of weakening demand, pressured average selling prices, notably Plantations, Petrochem, Materials, and extended margin pressures due to higher labour and materials input costs.
“Still, we anticipate improved market performance in second half 2023 on easing inflation/rate concerns, more tangible macro / corporate earnings uplift from China’s reopening and more settled domestic politics post-state elections in July,” said Maybank IB.
Valuation backdrop is also attractive, with the KLCI now at just 12x forward price-earnings ratio, historically a short-lived market level/bottom.
