Wobbly 2H25 for Corporate Malaysia?

The Star

5 hours ago

PETALING JAYA: The latest escalation in the Iran-Israel conflict, along with global volatility, weak exports and tax-related consumer headwinds, could further dampen Malaysian corporate earnings for the rest of the year and weigh on investor sentiment.
The cautious outlook follows a broadly disappointing first quarter (1Q25), with analysts warning that export-oriented counters may face further strain in the months ahead amid softer global demand and frontloading effects.
Maybank Investment Bank Research (Maybank IB) warned that the second half (2H25) 'might be more of the same, if not even more fluid,' following a 'tumultuous' 1H25, no thanks to external headwinds.
'Recent Middle Eastern conflicts, coupled with ongoing tariff negotiations and supply chain disruptions, plus domestic policy changes, are expected to shift sands in 2H25,' it noted in its latest report on the country's 2H25 outlook.
In its base-case scenario, Maybank IB maintained its year-end FBM KLCI target at 1,660, pegged to 14.4 times its 2026 earnings estimate – a level equivalent to 0.5 standard deviation below the 10-year mean, reflecting ongoing market volatility.
'This is our base case and assumes further de-escalation in trade tensions and favourable tariff negotiations,' it said.
Yesterday, the FBM KLCI rose 13.87 points or 0.92% to close at 1,516.61.
Following a weak 1Q25, Maybank IB has revised down its 2025 earnings growth forecast, now expecting recovery to be backloaded to 2026. It projects earnings growth of 2.5% this year and 7.7% in 2026.
'From a macro perspective, we expect attention in 2H25 to be focused on cross-currents of external headwinds amid domestic tailwinds, which, when combined, should still offer upside to the equities market albeit more selective.
'Softer 2H25 macro and any market weakness would offer investors an opportunity to accumulate stocks, especially banks, which we believe stand out as long-term winners,' the research house noted.
Echoing the cautious sentiment, Tradeview Capital chief investment officer Nixon Wong said corporate earnings of Bursa Malaysia-listed companies are likely
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to remain 'uneven and moderate in 2H25, as companies continue to navigate a complex global environment.'
'Persistently high geopolitical risks and uncertain global demand are weighing on export-oriented sectors like tech and commodities,' he noted, while adding that domestic demand has held up due to stable employment and government support.
'Consensus earnings growth for FBM KLCI constituents may still face downside risk unless catalysts such as improved external trade or stronger-than-expected tourism flows materialise.'
Meanwhile, former investment banker turned high-net-worth investor Ian Yoong Kah Yin described the 2H25 outlook as 'neutral to negative,' but added that much of the pessimism is likely already priced into current share valuations.
'The plus side is that many mid- and small-cap stocks have fallen substantially, reflecting the weak earnings outlook and poor market sentiment. The bad news is mostly priced in,' he said.
However, Yoong cautioned that the expanded sales and service tax (SST), set to take effect on July 1, will place additional strain on consumers.
'The expanded SST will impact consumers as the bulk of additional cost will be passed on, which will weaken demand in 2H25,' he said.
He warned that the consumer sector, particularly discretionary and non-essential categories, will be hit hard.
'This will lead to margin pressure for many listed companiess in the sector,' he said.
'Frontloading before the implementation will compound weak demand in the short term. Businesses with pricing power such as healthcare (6% service tax) and banking (financial services based on fees and commissions will be subject to 8% service tax) will be less impacted.'
Looking back, Yoong said the earnings weakness seen in 1Q25 was broad-based, with the technology, oil and gas, and automobile sectors among the underperformers.
'We expect the technology, automobile and consumer sectors to report weak earnings in 2H25,' he added, noting that the export sector will also be hit by a weaker US dollar and the after-effects of frontloading in the United States ahead of potential tariffs.
Still, he highlighted some bright spots: 'The plantation sector is one of the few bright spots in Bursa Malaysia with improving palm oil prices on the back of stronger oil prices.'
However, Yoong said some plantation companies with holdings in Indonesia are facing major legal issues related to plantations infringing on forest reserve land.
Meanwhile, Tradeview's Wong highlighted sector divergences, with some domestic-facing sectors faring better than their export-driven peers.
He noted that the banking sector 'may be benefiting from stable net interest margins if Bank Negara stays put on rates, while asset quality remains manageable.'
'Resilient domestic consumption, especially in essential goods, should provide steady topline growth for consumer staples and food and beverages, although margin pressures remain,' he said.
He also pointed to the utilities sector as 'defensive' and noted that certain real estate investment trusts (REITs), particularly industrial and selective retail, offer 'attractive yields amid still benign bond yields.'
On the downside, he said weak global tech demand recovery continues to negatively impact local tech companies, while the glove sector faces ongoing margin compression due to oversupply and pricing pressures.
On policy, Wong said development spending under the National Industrial Master Plan (NIMP 2030) and National Energy Transition Roadmap (NETR) could support the construction and renewable energy sectors.
Additionally, a rebound in tourism and consumer spending may benefit retail, airline and gaming counters.
Still, he cautioned that 'a slower-than-expected recovery in China or a global slowdown would dent exporters' earnings,' while tax-related policies such as SST changes and subsidy rationalisation 'could impact consumption and corporate cost structures.'
Meanwhile, Maybank IB reiterated a 'neutral' stance on banks, but noted potential upside 'should banks decide to use management overlays to buffer credit costs.'
The research house remained positive on domestic-centric consumer plays, backed by policy tailwinds, and maintained a favourable outlook on healthcare, REITs and RE.
'For 2H25, we raise our conviction for the construction sector amid build-up in activities within the data centre space,' it added.
Maybank IB also identified three sector thematics to watch: plantations, utilities/renewables, and ports.
The Middle Eastern conflict has triggered a surge in oil prices and indirectly caused a bounce in crude palm oil (CPO) prices, though this may be temporary, it said.
'While we expect CPO prices to end the year at RM4,000 per tonne, only a sustained level above RM4,500 could surprise planters on the upside.'
On infrastructure and the green economy, Maybank IB noted that the NETR 'continues to track well,' with expected awards for renewables, battery energy storage systems, and carbon capture, utilisation and storage.
As for logistics, 'ports face congestions amid tariff and Middle Eastern concerns,' and Maybank IB expects storage rates to surge.
Foreign investors continued their net selling streak on Bursa Malaysia for the fifth consecutive week, with a net outflow of RM565.2mil last week – slightly higher than the RM444.4mil outflow recorded the week before, according to MIDF Research.
'They were net sellers on every trading day, with daily outflows ranging from RM52.5mil to RM202.2mil,' the research house said in its weekly fund flow report.
Sectors with the highest net foreign inflows were transportation and logistics (RM95.8mil), REITs (RM38.4mil) and construction (RM28.9mil).
In contrast, the largest outflows were recorded in financial services (RM387.4mil), healthcare (RM110mil) and industrial products and services (RM52.9mil).
Meanwhile, local institutions sustained their buying momentum for the fifth week, with net inflows of RM510.6mil.
Local retailers, too, turned net buyers, snapping a two-week outflow streak with net purchases of RM54.7mil.
On trading activity, MIDF said average daily trading volume declined across the board – except for foreign investors, whose volume surged 24%.
In comparison, local institutions and retailers saw declines of 13.3% and 10.9%, respectively.