KUALA LUMPUR: The combined reported earnings of Bursa Malaysia's largest 30 companies slump nearly 35 per cent quarter-on-quarter to about RM15.8 billion in the recent March reporting period.

This prompted some analysts to revise their financial year 2023 aggregate profit forecast of the FBM KLCI constituents.

MIDF Research said the RM15.8 billion aggregate net profit slumped sequentially at 34.7 per cent quarter-on-quarter but improved against the corresponding quarter last year by 3.0 per cent.

"In the first quarter, the aggregate reported earnings of companies under MIDF Research universe came in at RM18.8 billion. It was unchanged year-on-year. However, it declined 36 per cent quarter-on-quarter principally due to extraordinary gains by Axiata Group Bhd of RM9.5 billion in the fourth quarter of 2022."

The aggregate FY2023 earnings forecast of the FBM KLCI constituents under MIDF Research's coverage was revised lower by -6.7 per cent to RM64.7 billion.

In contrast, the aggregate FY2023 earnings forecast of non-FBM KLCI constituents under its coverage was revised higher by 3.0 per cent to RM17.8 billion.

The firm said the expected lower aggregate figure for FY2023 were mainly contributed by downward revisions to forward earnings of industrial products and services (namely Petronas Chemicals Group Bhd), plantation (namely Sime Darby Plantation Bhd), consumer products and services (mainly PPB Group Bhd) and financial services (mainly Malayan Banking Bhd and CIMB Group Holdings Bhd) and transport (namely MISC Bhd) constituents.

Similarly, the aggregate FY2023 earnings forecast of the stocks under MIDR Research's portfolio is cut by RM4.1 billion or 4.8 per cent to RM82.5 billion.

MIDF Research said the divergence in the net change to aggregate forward earnings favouring non-heavyweight stocks was duly reflected in their relative price performance thus far this year.

As of end-May 2023, the year-to-date price return of FBM KLCI showed a 7.2 per cent contraction. In contrast, the midcap FBM70 index registered year-to-date return of 4.9 per cent.

MIDF Research said the heavyweights were bogged down mainly by price underperformance of financial services as well as commodity-related industrial product and services, and plantation stocks.

The former sector was impacted by banking turmoil in the US and Europe while the latter by lower commodity product prices.

"Nonetheless, going forward, we do not expect the underperformance of these heavyweight stocks to persist. Firstly, the banking turmoil in the US and Europe is arguably a consequence of the rapid rise in interest rates during the past year.

"As the US Federal Reserve is anticipated to pause either in the upcoming June or later July meeting, we can thenceforth expect to see some recovery in both the valuation and earnings expectation of banking stocks."

Secondly, the firm reckoned the softening commodity price trend was presaging a slowdown in economic activities, which was also arguably a consequence of the rapid rise in interest rates during the past year.

"Likewise, we can expect to see some improvement in both the valuation and earnings expectation of commodity-related stocks post-Fed (interest rate) pause," it added.

Affin Hwang Capital said there were more disappointment among the larger capitalised stocks, especially in utilities, oil and gas and telcos.

The firm said despite its upgrade on crude palm oil prices, it now expected the 2023 FBM KLCI earnings per share growth to be generally flat year-on-year versus 1.9 per cent YoY previously.

With market volatility ahead, Affin Hwang prefers those with strong earnings visibility and certainty.

The firm added Telekom Malaysia Bhd, Kuala Lumpur Kepong Bhd, Gamuda Bhd and YTL Reit to its "Top 10 Buys" and removed Apex Equity Holdings Bhd, Axis Reit and Gas Malaysia Bhd due to their earnings disappointment.

Among stocks that positively surprised, Affin Hwang said consumer names like DKSH Holdings (Malaysia) Bhd, Aeon Co (M) Bhd and Bonia Corp Bhd saw positive earnings surprises backed by resilient consumer spending.

Better cement prices led to the positive surprise for Malayan Cement Bhd while Hartalega Holdings Bhd surprised with a better-than-expected sales volume.