Much Stronger Earnings Growth in CY24 and CY25

Although more companies under our coverage reported earnings that surpassed expectations in 4Q23 results season, their earnings contracted 1.9% sequentially and 0.8% for the full year. Post results season, we have trimmed our CY24 and CY25 earnings forecast by 2.5% and 2.2% respectively. The revision arises from tweaking our Banking, Healthcare, Oil & Gas, Plantations and Power & Utilities sectors’ earnings. Consequently, we are expecting an earnings growth of 17.6% and 9.3% in CY24 and CY25, respectively for stocks under our universe. Meanwhile, our earnings growth forecasts for FBMKLCI component stocks are 13.1% and 6.9% vs. consensus’ 18.7% and 4.9%, respectively.

We maintain our end-2024 FBMKLCI target at 1,620, based on CY25 PER of 12.5x, with an upside bias due to 1) cheap ringgit drawing in greater foreign participation as funds take position ahead of possible Fed loosening, 2) pro growth policies and reforms gaining momentum with greater political stability, adding lustre to government’s commitment to reduce fiscal deficit and government debts, 3) stronger corporate earnings in CY24 making valuation attractive vis-à-vis its long-term average of 16x, and 4) high possibilities of greater intervention from China to revive its economy, where details could emerge in its 14th National People’s Congress this week, which will support Malaysia’s narrative for a stronger economy in 2024 as exports recover. On the downside, Malaysian government backpedalling on its reform measures, delays in the US rate cut, and worsening geopolitical tensions between China and the US, Russia and NATO members, and Israel and Hamas are seen as major dampeners that could derail the positive outlook.

Mainly in Line and Exhibit Sequential Improvement in Earnings Delivery

In this earnings season, despite 4 sectors underperforming in comparison to the 2 sectors that outperformed, companies within our coverage demonstrated a slight sequential improvement in earnings delivery in 4QCY23. Notably, 25% surpassed expectations, marking the highest percentage across the four quarters in CY23, with 44% meeting expectations and 31% falling short of our projections. This stands in contrast to the figures from 3QCY23, where 16% beat expectations, 52% met them, and 32% lagged – as illustrated in Figure 4.

Out of the 104 companies (Malaysia only) under our coverage, 46 companies (44% of our coverage) reported earnings in line with our estimates. Sector such as Banking, Consumer, Gaming, Healthcare, Insurance, Media, Oil & Gas, Property, Technology and Transportations delivered earnings that met our expectations.

Meanwhile, 32 companies (31%) reported disappointing results. Building Materials (ANNJOO, CHINWELL and CSCSTEL), Construction (GADANG, KERJAYA, TRC and WCT), Plantations (IOICORP, SIMEPLT and TSH), and Power & Utilities (MALAKOF, RANHILL and TENAGA) were the four sectors that announced earnings that fell short of our projections. Additionally, four heavyweights, namely GENTING, IHH, PCHEM and CDB, reported weaker-thananticipated results.

In contrast, 25% of our coverage or 26 companies, posted results that beat our expectations. Automotive (BAUTO, MBMR, and SIME) and Telecommunications (AXIATA and TM) emerged as the two sectors that surpassed earnings projections. Notably, several prominent large-cap stocks, such as CIMB, QL, MISC, YTLPWR and WPRTS, outperformed by surpassing our forecasts.

Similarly, in the comparison of actual performances against consensus expectations for all stocks within our coverage, there was a sequential improvement. In particular, 29% exceeded expectations while 38% performed within expectations and 33% fell below expectations (Figure 5), as opposed to 22%, 38%, and 40% in 3QCY23, respectively.

Since the previous quarterly review, we had added PGF Capital to our universe of coverage. PGF plays a crucial role in global warming with its low-cost, noncombustible, and effective building insulation solution, i.e.: glass wool. Also, it is one of the largest landowners in Tanjong Malim, possessing 1,311 acres of leasehold land adjacent to Proton City. We value the stock at RM2.76, based on SOP valuation. Our target price implies a PE of 10.6x CY25 EPS, which we deem reasonable for an investment in a carbon-neutral company, which will stand to gain from robust demand and regulatory support in future.

We have ceased coverage on UMW (TP: RM5.00), as it has been delisted from Bursa Malaysia following its privatisation by Sime Darby Bhd.

Source: TA Research - 4 Mar 2024