Corporate Malaysia: Moderate Earnings Growth in 4Q22?

Stocks are riding a tentative recovery. The local benchmark index FBM KLCI raising the curtain to a new year. But whether the index could keep up the good momentum will depend on how the upcoming fourth quarter (4Q) corporate earnings season will turn out.

According to Maybank Investment Bank Bhd, in the first nine months of 2022, core profit among companies rose 11% year-on-year (y-o-y) with strong reopening-driven growth recorded in the property (+106%), consumer (+69%), and auto (+35%) sectors, real estate investment trusts (REITs, +56%), as well as construction and infrastructure (+61%) counters.

Meanwhile, big-cap sectors such as banks (+5%), plantation (+14%) and telecommunications (+6%) also showed good traction, despite the Cukai Makmur dragging companies that fall under these sectors.

Geopolitical tensions, poor weather, foreign workers shortage and export restrictions in 2022 continue to weigh on plantation companies. Corporate earnings are likely to be mixed for the oil and gas (O&G) sector. The sector has enjoyed high profits during the first half of 2022 in line with higher crude oil prices.

The semiconductor and technology sectors are expected to continue to see slower growth in earnings during  4Q as demand from advanced economies have slowed.

The main challenges are labour and material shortages, demand uncertainties, and geopolitical tensions. Overall, the sector is still clouded by weakening demand for consumer products — as people have been affected by spiking and rampant inflation, geopolitical tensions, and the impact of China’s lockdowns and weaknesses in Europe.

In the healthcare sector, glove manufacturers will likely continue to report dismal earnings as a result of industry-wide oversupply. The oversupply situation is unlikely to be resolved in the short-term. However, healthcare businesses that focus on hospitals are likely to benefit from the rebound in domestic mobility.

The key is to remain cautious for six months forward. Uncertainties still abound and no one can see how 2023 will pan-out.

Reference:

Corporate Malaysia to see moderate earnings growth in 4Q22, Priyatharisiny Vasu, theEdgemarkets.com, 23/1/23