KUALA LUMPUR (March 7): Corporate earnings in the fourth quarter of 2022 (4Q2022) seemed to have failed to keep up with the recovery seen in 3Q2022 amid ongoing global headwinds such as high inflation rate, increase in operating costs and lower crude palm oil prices.

This is the overall observation of several research houses that looked at Corporate Malaysia's performance in the final quarter of 2022.

CGS-CIMB Research said the percentage of companies tracked by the firm that posted impressive results fell to 25% from 38% in  3Q2022, while the percentage of companies that underperformed increased to 33% from 26% due to weaker results from companies in the petrochemical, glove, technology and airport sectors.

“All sectors except banking, shipping, telecommunications and leisure posted weaker year-on-year (y-o-y) and quarter-on-quarter (q-o-q) earnings, according to CGS-CIMB analysts Ivy Ng Lee Fang and Nagulan Ravi.

“The 4Q2022 earnings revision ratio of 0.76 times was broadly in line with the historical average, which suggests that the positive earnings revision cycle since 4Q2021 from reopening may have ended,” said the duo in a note on Monday (March 6).

Hong Leong Investment Bank (HLIB) Research, meanwhile, said the percentage of companies that posted disappointing results rose to 31% from 25% in 3Q2022. “Results that exceeded expectations saw a slight decline from 28% to 27%,” said its analyst Jeremy Goh.

Public Invest Research said the 4Q2022 reporting cycle did not see major revisions to earnings of index-component stocks such as banks and plantation, while chemical or consumer sectors “largely negated” each other.

“While the macro-trend is still skewed to the positive by way of more earnings hits (above/within), the drop in momentum is somewhat worrisome as there was also a greater number of disappointments this time around,” said the firm.

Companies with over RM1b market cap posted improved earnings

A quick look at the 179 companies listed on Bursa Malaysia with a market capitalization of at least RM1 billion compiled by The Edge showed that only 49 companies recorded earnings growth in 4QFY22, both on y-o-y and q-o-q basis.

In the banking sector, Malaysia Building Society Bhd saw a significant improvement in its earnings, which rose 162% on year and 240% on a quarterly basis. RHB Bank Bhd’s earnings expanded 22.33% y-o-y and 10.23% q-o-q, while Hong Leong Financial Group Bhd grew 37.78% y-o-y and 13.07% q-o-q.

In the consumer and service sector, Fraser & Neave Holdings Bhd posted a 114% y-o-y and 101% q-o-q rise in 4QFY22 profits. For Nestle (Malaysia) Bhd, earnings rose 18.51% y-o-y and 17.94% q-o-q, while Magnum Bhd's profits climbed 82.91% y-o-y and 87.05% q-o-q.

Construction company Gamuda Bhd saw its profits jump 667% y-o-y and 358% q-o-q, while KPJ Healthcare Bhd gained 290% y-o-y and 32.81% q-o-q.

Elsewhere, YTL Corp Bhd's earnings soared 4,657% y-o-y and 165% q-o-q while YTL Power International Bhd's soared 958% y-o-y and 14.74% q-o-q.

Among real estate investment trusts, IGB REIT's profits climbed 95.6% y-o-y and 72.63% q-o-q in 4QFY2022, while Pavilion REIT saw its earnings grow 304% y-o-y and 254% q-o-q.

Challenging outlook in 1H2023

CGS-CIMB’s Ng and Nagulan said earnings momentum could be negative in the first half of this year (1H2023) due to rising operating costs, slowing sales growth and weaker commodity prices.

“We are neutral to negative on the recently revised Budget 2023. Investors will likely be focusing on government policies to tackle cost of living, upcoming Umno polls in March, six state polls likely in June and the government’s plans to introduce more targeted subsidies, in our view,” they said.

They revised their end-2023 KLCI target to 1,522 points, from 1,633, reflecting earnings risks.

“We now estimate KLCI’s core net profit to grow by 9.2%/5.7% in 2023F/2024F (versus previous forecasts of +12.8%/+4.2%). The slight downgrade in 2023F earnings comes from Petronas Chemicals and Genting group while the 2023F growth will be predominantly driven by banks’ likely 20% earnings expansion (almost half arising from the expiry of Cukai Makmur),” the analysts added.

Public Invest Research said uncertainty in earnings will remain in 1H2023 as global economies work through the full effects of aggressive rate hikes over the last six months.

“Sentiment is weak, understandably, but the market is also relatively undervalued (now more so) with the earnings picture not having been despite this quarter’s apparent wobble. We wouldn’t be in a hurry to get into the market at this juncture, but retain sufficient optimism to suggest buying into market weakness to ride on the upside going into 2H2023.

“Malaysia's economic growth direction (and earnings picture) going into 2024 depends on the severity or wear-off of the downside risks which, at this point, is not expected to be severe,” it added.

The market is likely to remain choppy until mid-year due to the possibility that the US interest rate upcycle will “peak”, said HLIB’s Goh, but the contagion effect could be cushioned by China's reopening.

TA Investment Management Bhd chief executive officer Choo Swee Kee added: “Overall, we are positive on the market for 2023 as we believe the market is near bottom and is just awaiting confirmation of this.

“Being hit by a global recession is probably a good confirmation of the market bottoming out. It is likely that the market is already so well prepared for this imminent recession that the market should have limited downside but every reason to look positive moving forward,” he said when contacted by The Edge.