KUALA LUMPUR: Analysts have labelled the first quarter of 2023 (1QCY23) as the 'forgettable' quarter since a lot of companies posted core earnings below estimates, despite the fact that it was toned down owing to adverse market conditions.
According to RHB Investment Bank Bhd, the misses-to-beats ratio has risen to 3.6, with 44.6 per cent of the results falling short of expectations.
The firm said negative operating leverage and lower margins are caused by modest topline growth and sustained expense pressures.
"With the business environment likely to remain challenging, investor sentiment will remain cautious pending the outcome of the impending six state elections," it said.
RHB predicted that the FBM KLCI end-of-year objective would be reduced to 1,500 points from 1,575 points.
In a similar vein, Public Investment Bank Bhd (PIVB) said that the temporary halt in the fourth quarter of 2022 earnings momentum has also impacted 1QCY23 in what it described as an extraordinarily unsatisfactory period.
According to PIVB, several financial and economic issues in the US have taken over the global market trend.
One month ago, there were fears about US banking defaults and their impact on the global financial system, and lately, the global market was concerned about a potential sovereign debt default, which was subsequently resolved.
"New day, new issue, same outcome: market uncertainty and lethargy. Major global economies are on edge and are at significant risk of sliding into recessions.
"Major global economies are on edge and are at significant risk of sliding into recessions," it said.
PBIV has reduced its target for the FBM KLCI to 1,530 points from 1,650 points.
Both RHB and PIVB agreed that plantations, gaming, media, gloves, and rubber products performed below forecasts.
According to RHB, no sector performed beyond expectations.
RHB assessed the oil and gas sector to be operating below expectations, while the sectors that provided the biggest earnings misses included plantation, technology, construction, rubber products, property, and consumer.
Despite the return of contract flows and crude oil prices holding around US$80 per barrel, PBIV described the sector as a "mixed bag," with equal numbers of surprises, meetings, and disappointments.
"Consensus appeared to have been more optimistic, thereby seeing greater levels of disappointment vis-à-vis ours," it said.
In terms of market mood, both firms agreed that, given the current economic environment, sentiment is low as global economies work through the full effects of rapid rate hikes over the previous year.
RHB anticipates investor sentiment to remain cautious in the face of limited visibility on market re-rating drivers as global macroeconomic conditions continue to evolve.
"The results of the impending six-state elections may have a bearing on the propensity of the unity government to implement critical fiscal and policy reforms," it added.
PBIV said while the market is currently a trading-oriented market, despite growing uncertainties in macro conditions, the firm suggested a greater accumulation in the market's ongoing weakness to extend its recovery into 2024.
RHB's key investment themes centred on a defensive approach coupled with trading strategies to boost alpha and deploying excess cash on weakness in value names for medium-term outperformance.
The firm maintained an "Overweight" rating on the banking, oil and gas, basic materials, non-bank financial institutions, healthcare, and property sectors.
Honing in on the specifics, PBIV, on the other hand, reiterated its optimism on the prospects of Able Global Bhd, D&O Green Technologies Bhd, Inari Amertron Bhd, and SKP Resources Bhd for the smaller-capitalised picks for 2023.
For larger-capitalised stocks, the firm leaned towards Gamuda and Maybank as its top picks.