• FY24 earnings estimates intact. The Dec 2023 reporting quarter had soft undertones. Eight sectors (Sep 2023: Five) performed below expectations, while just one (Sep 2023: Four) exceeded estimates. For the RHB basket, FY23 earnings missed expectations by 1%, with the main culprits being plantations, oil & gas (O&G) and utilities – offset by banks, transport, gaming, telecommunications and property. Our FY24 earnings estimates were largely unscathed with that of FBM KLCI counters we cover trimmed by just 0.9%, and the RHB basket by 1.8%. We make no change to our end-2024 FBM KLCI target of 1,600pts for now.

• Soft undertones. 24.1% of results beat expectations (Sep 2023: 21.1%) while 40.6% (Sep 2023: 45.1%) were in line, helping to improve the misses-to-beats ratio to 1.5 (Sep 2023: 1.6). Overall, only the property sector beat expectations, while plantations, media, gaming, healthcare, utilities, rubber products, basic materials and consumer all missed forecasts. We are now NEUTRAL on basic materials, after we downgraded our call for Press Metal to NEUTRAL (from Buy) post toning down aluminium price forecasts.

• KLCI stocks. Benchmark index stocks performed well, with 26.9% (Sep 2023: 22.2%) above expectations and 50% (Sep 2023: 59.3%) in line. Overall, FY24 earnings were trimmed by 0.9%. Earnings downgrades were seen in plantations, O&G, basic materials and utilities but offset by upgrades for the banks and auto sectors. The bellwether banks sector results were in line, helped by a notable beat from CIMB. Management guidance on the outlook for the year was guarded – it cited inflationary pressures, the normalisation of interest rates, and a weaker currency as key risks although optimism was expressed on lending appetite and the absence of stress on asset quality.

• Strategy. RHB continues to retain an optimistic base case on the global macroeconomic outlook, boosted by China’s recovery and dovish expectations for the US monetary policy. Domestic economic reform initiatives are headed in the right direction and will be an important catalyst to attract and develop new sources of FDIs. The Johor-Singapore Special Economic Zone holds great long-term promise. News flow remains positive while net foreign portfolio inflows are beginning to pick up, coupled with our view that the MYR has already bottomed out. Corporate earnings fragility remains a key risk going forward. Investment themes centre on: i) Astute stock-picking, ii) identifying opportunities to accumulate on weakness, iii) a focus on laggards as rotational strategies kick in, iv) China recovery plays, v) beneficiaries of a stronger MYR, and v) small- and mid-cap names. We have OVERWEIGHT ratings on the property, construction, healthcare, transport, O&G, utilities and rubber products sectors.

Source: RHB Securities Research - 4 Mar 2024