KUALA LUMPUR (Sept 4): The telco and media, plantation, industrial and consumer sectors were the top contributors among FBM KLCI component stocks in earnings performance for the quarter ended June 30, said MIDF Research.

In an earnings review note on Monday (Sept 4), the research firm said two telecommunications groups, namely CelcomDigi Bhd and Telekom Malaysia Bhd, and plantation company Sime Darby Plantation Bhd were top performers. These were followed by Petronas Chemicals Group Bhd (PetChem) under the industrial category and three consumer companies, namely MR DIY Group (M) Bhd, Genting Bhd and Sime Darby Bhd, which were outperformers for the quarter.

On the other hand, the negative on-year normalised growth performance in the second quarter of financial year 2023 (2QFY2023) was mainly contributed by earnings diminution among industrial companies, namely PetChem and Press Metal Aluminium Holdings Bhd, as well as IOI Corporation Bhd, Kuala Lumpur Kepong Bhd (KLK) and Sime Darby Plantation Bhd for the plantation sector and Tenaga Nasional Bhd (TNB) under utilities.

“Nonetheless, 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,” the research outfit said.

In the second quarter, the aggregate reported earnings of FBM KLCI 30 current constituents came in at RM14.1 billion, which slumped sequentially at 11.1% quarter-on-quarter (q-o-q) and against the corresponding quarter last year at 10.8%, MIDF said.

On the FY2023 outlook, the research firm cut the aggregate FY2023 earnings of the FBM KLCI constituents under its coverage to RM60.3 billion, and to RM65.3 billion for FY2024.

“The lower aggregate figure for FY2023 [was] mainly contributed by downward revisions to forward earnings of industrial [products and services (P&S)] (PetChem), utilities (Tenaga Nasional), telco and media (Axiata Group Bhd) and plantation (IOI Corp and KLK) constituents.

“Moreover, the lower aggregate figure for FY2024(F) [was] mainly contributed by downward revisions to forward earnings of industrial P&S (PetChem), financial services (Hong Leong Bank Bhd, Hong Leong Financial Group Bhd, and RHB Bank), and telco and media (Axiata) constituents,” MIDF said.

Separately, Kenanga Research in a note stated that earnings delivery against its expectations of FBM KLCI component stocks improved sequentially in the second quarter; however, against market expectations, there was no significant sequential improvement.

Kenanga said common drags for utilities companies missing their earnings forecast in the past quarter were due high coal inventory that affected performance of TNB and Malakoff Corp Bhd. Weak commodity prices affected 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, Kenanga said.

In addition, companies such as Unisem (M) Bhd and Power Root Bhd had a drop in earnings due to a slowdown in exports, followed by companies such as Astro Malaysia Holdings Bhd and Kimlun Corporation Bhd that missed earnings forecasts due to cost escalation.

“Following the 2QCY2023 (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,” Kenanga said.

It maintained an end-2023 FBM KLCI target of 1,540.

“[This is based] on the economy reopening in 2021-2022 on a reduced market risk premium with the nation sailing into more tranquil political waters after the recent state elections,” it added.

With the state elections and 2Q2023 corporate earnings reports now out of the way, Kenanga believes investors will shift their attention back to key global macro issues.

“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 added.

In addition, Chinese government policy response to the faltering shadow banking and real estate sectors in China also will get investors' attention.

Kenanga added it continues to like banks and telcos as value play and for their earnings resilience.

Telcos are also poised for further re-rating as and when the roll-out of the market-driven Dual Network 5G model is firmed up.

“We expect an acceleration in the roll-out of public infrastructure projects post the state elections, benefiting contractors. We are positive on auto makers/distributors as we believe a new car is still an affordable luxury for most Malaysian households despite high inflation and a slowing global economy,” it added.

Kenanga has kept its “neutral” call on the plantation sector due to the current El Niño weather phenomenon turning out to be a strong one.