Leading the pack were telecommunications giants CelcomDigi Bhd and Telekom Malaysia Bhd, alongside Sime Darby Plantation Bhd (SDP) in the plantation sector, while Petronas Chemicals Group Bhd (PetChem) represented the industrial category, according to a research note today.
Notably, consumer companies MR DIY Group (M) Bhd, Genting Bhd, and Sime Darby Bhd also delivered impressive results for the quarter.
Conversely, the downturn in year-on-year (y-o-y) normalised growth during the second quarter of the fiscal year 2023 (Q2 FY2023) was attributed to decreased earnings within the industrial sector.
This specifically impacted companies like PetChem, a unit of state energy company Petronas, Press Metal Aluminium Holdings Bhd, IOI Corporation Bhd, Kuala Lumpur Kepong Bhd (KLK), and SDP in the plantation industry, along with Tenaga Nasional Bhd (TNB) in the utilities sector.
However, the research house said the decline in performance was moderated or lessened by improvements in the same year compared to the previous year.
“The decline was moderated by the on-year improvement, particularly among the financial services, namely CIMB Group Holdings Bhd, Malayan Banking Bhd, Public Bank Bhd and RHB Bank Bhd, as well as the transport and logistics, mainly MISC Bhd and Westports Holdings Bhd,” it said.
In Q2 2023, the combined reported profits of the existing members of the FBM KLCI 30 index amounted to RM14.1 billion, down 11.1% from the previous quarter and a 10.8% drop compared to the same quarter the previous year, said MIDF.
For its FY2023 outlook, the research house revised downward its earnings projections for the FBM KLCI constituents it tracks, now forecasting aggregate earnings of RM60.3 billion for FY2023 and RM65.3 billion for FY2024.
Falling short in Q2
In a recent note, Kenanga Research reported that while earnings performance for FBM KLCI component stocks showed a sequential improvement in the second quarter, it did not meet the market’s anticipated level of improvement.
The research house identified various factors responsible for utilities falling short of their earnings projections in the previous quarter. These included elevated coal inventory impacting the performance of TNB and Malakoff Corp Bhd.
Besides, weakened commodity prices caused diminished earnings for companies such as Ann Joo Resources Bhd, Boustead Plantations Bhd, Engtex Group Bhd, Hap Seng Plantations Holdings Bhd, Ta Ann Holdings Bhd, and TSH Resources Bhd.
Additionally, Unisem (M) Bhd and Power Root Bhd experienced reduced earnings due to export slowdown, while Astro Malaysia Holdings Bhd and Kimlun Corporation Bhd missed their earnings forecasts due to rising costs.
“Following the Q2 CY2023 (second quarter of calendar year 2023) results, we now project FBM KLCI earnings to contract slightly steeper by 1.6% in 2023 (from a 1.1% decline previously), followed by a higher growth of 8.4% in 2024 (from 7.4% previously) owing to a slightly lower base in 2023,” said Kenanga.
Shifting investor focus
After the conclusion of the state elections and the release of corporate earnings reports in Q2 2023, Kenanga research predicted that investors will refocus on critical global macroeconomic concerns.
“Particularly a potential pause in rate hikes and a more dovish tone by the Fed at the Federal Open Market Committee (FOMC) meeting on Sept 19-20, 2023,” it said.
Furthermore, investors will closely monitor the Chinese government’s policy actions in response to challenges facing the shadow banking and real estate sectors in China.
The research house maintained its bullish stance on banks and telco companies, citing their value-based appeal and earnings resilience, while also noting the potential for telcos to see a revaluation with the advancement of the market-driven dual network 5G model.
“We expect an acceleration in the roll-out of public infrastructure projects post the state elections, benefitting contractors,” it added.