THE US-China trade war may offer a convenient reason — or excuse — for the recent global market jitters.

But closer to home, the tepid first quarter corporate performance has set off alarm bells. As at the time of writing, about half of the 91 companies that have announced January to March results have underperformed compared with the previous corresponding period.

Although the numbers are not disastrous, an analyst with a local asset management firm says the “early-bird” reporting companies tend to be those that performed better.

“It is a concern because usually the better results are announced first. But what we are seeing are more companies slipping into losses ... and we’re just at the beginning of it,” he tells The Edge over the phone.

Plantation and technology companies are obvious underperformers.

“Earnings so far have been weak, particularly for the plantation and technology sectors as they were hit by lower crude palm oil (CPO) prices and weaker demand respectively,” MIDF head of research Mohd Redza Abdul Rahman tells The Edge.

“Specifically for the plantation sector, we have downgraded a few stocks to ‘sell’ amid concerns over the oversupply situation and pressure from low soybean prices.”

As for tech sector, Redza says the escalating trade war has been an additional dampener following US President Donald Trump’s executive order for American companies to end their business ties with Chinese technology companies, particularly Huawei, which Trump maintains is a threat to US national security.

Apart from the two sectors, the oil and gas industry also proved to be a let-down. Notwithstanding higher oil prices, oil and gas services firms, such as Velesto Energy Bhd and Dayang Enterprise Holdings Bhd, have performed below expectations.

Analysts tracking the sector have resigned themselves to the fact that recovery is likely to take longer than expected.

Hong Leong Investment Bank (HLIB) research analyst Sean Lim says Dayang incurred a core loss of RM4.8 million in the first quarter on weaker offshore topside maintenance services and marine charter segments.

“Despite cutting our FY2019 and FY2020 earnings by 10% and 9% respectively, we upgrade the stock to ‘hold’ with lower ex-target price of 88 sen (from RM1.02) in view of stronger quarter-on-quarter results to be offset by short-term overhang from the ongoing corporate exercises,” he says in a recent report.

Similarly, Velesto Energy saw a higher-than-projected loss in the first quarter.

Although the expectation was for Velesto to post a core net loss on lower utilisation rates, the RM23 million loss on higher operating costs was still much more than what CIMB Equity research analyst Raymond Yap had anticipated.

“As a result, we maintain a ‘hold’ but cut our discounted cash flow-based target price to 30 sen and lower our FY2019 core net profit forecast by 7%. Velesto’s share price should hold up because its 2HFY2019 outlook is much better, with jack-up utilisation rates estimated at 95%, against 71% in 1HFY2019,” he says in a report.

Are weaker 1Q results a concern?

To Rakuten Trade vice-president of research Vincent Lau, most of the weaknesses have been priced in.

“As expected, 1Q2019 results so far have been lacklustre. However, we expect a better 3Q and second-half results for selected companies. The recovery is going to be selective, rather than broad-based,” he says.

He also notes that the current weakness — particularly for technology-related companies and semiconductor firms — has largely been priced in, given the long-running US-China trade war.

He believes value is emerging from some of these companies after the selldown. “Some of these tech companies are still reporting decent profits.”

Looking on the bright side, MIDF’s Redza highlights sectors that are looking more perky. “Despite the gloom, we saw the brighter side of results, including REITs (real estate investment trusts) ... earnings were broadly in line with expectations.”

Property developers also finally took cognisance of the supply glut, made worse by the cautious outlook for the sector, and were more selective about their launches. This resulted in better take-up rates and more commendable results last quarter, Redza opines.

On the construction sector, he says there were some improvements, singling out Sarawak companies Hock Seng Lee Bhd and KKB Engineering Bhd.

“Similarly, with insurance, we saw good results owing to higher contribution and growth of premium income,” he adds.

Another industry to take note of is automotive. Brian Yeoh, an analyst with Affin Hwang Capital, notes that the total industry volume sales last month rose 6.1% year on year to 50,000 units.

In a report, he highlights that national carmakers Perodua and Proton are on a roll. In addition to the overwhelming interest in the Proton X70 and Perodua Aruz, other refreshed models are also drawing attention. The demand is expected to drive sales momentum for the national carmakers this year.

Yeoh is “overweight” on the automotive sector, his top picks being Bermaz Auto Bhd and MBM Resources Bhd.

“Downside risks could come from a prolonged tightening of automotive financing hindering the borrowing ability of car buyers, exchange rate risk and a slowdown in the economy. The key event to watch out for is the National Automotive Policy 2019, which is expected to be unveiled by end-2Q2019,” he says.

With more results scheduled this week, HLIB head of research Jeremy Goh expects the focus to be on heavyweights, but cautions that the banking sector is expected to see low single-digit earnings growth.

He also says depressed CPO prices will continue to take a toll on plantation companies.