Corporate 2Q earnings expected to reflect external challenges

The Star

5 days ago

PETALING JAYA: Malaysia's upcoming second-quarter (2Q) earnings season is expected to be relatively muted, with overall corporate performance continuing to reflect challenges from external uncertainties, particularly the ongoing US-Malaysia tariff negotiations.
While earnings growth may remain soft, the reporting cycle begins against a backdrop of stabilising macroeconomic indicators and fewer forecast revisions compared to the previous quarter. As such, Maybank Investment Bank (MaybankIB) Research believes the worst of the earnings downgrades may now be behind.
'The 2Q25 results season may yet be another unexciting one but at least one with fewer earnings downgrades in our view,' the research house said in its latest strategy note.
MaybankIB Research has forecast a modest 2.5% earnings growth for the FBM KLCI in 2025, primarily weighed down by the banking sector. It anticipates a stronger rebound in 2026 with a projected growth of 7.7%.
The brokerage's base case target for the FBM KLCI stands at 1,660, pegged to 14.4 times 2026 estimated price-to-earnings ratio (PER), representing -0.5 standard deviation of the 10-year mean, amid continued market volatility and uncertainty over trade policy.
'Our base case assumes further de-escalation in trade tensions and favourable outcome from tariff negotiations,' the report noted.
Conversely, in a bearish scenario where earnings growth moderates to 5%, the index could dip to 1,450 based on 13 times PER.
Despite a softer external environment, Malaysia's domestic economic fundamentals appear encouraging. The research points to robust consumer activity, a sustained investment cycle, and signs of resilient private demand as cushioning the impact of weaker exports, particularly in May and June.
'The 2Q25 real GDP growth advanced estimate of 4.5% year-on-year, with a rebound quarter-on-quarter from 4.4% in 1Q25, suggests a steady growth momentum and indicates external headwinds due to US tariffs are being mitigated by domestic tailwinds,' it said.
Inflation has also cooled to 1.1% in June, while the labour market remains firm with the unemployment rate steady at 3%.
MaybankIB Research attributed rising disposable incomes—fuelled by civil servant pay hikes, minimum wage increases, and a surge in Employee Provident Fund contributions—as supportive of its positive stance on the consumer, real estate investment trusts (REITs), and construction sectors.
Sector-wise, consumer, construction, healthcare, REITs, and renewable energy remain MaybankIB Research's key overweights, with minimal changes to its top stock picks apart from Solarvest Holdings Bhd , which has outpaced its target price.
'We expect some positive momentum for construction, healthcare, property and, more selectively, the oil and gas and utilities sectors,' the research added.
The technology sector may face near-term weakness, but MaybankIB Research noted that most of the necessary earnings downgrades have already been made.
'From our channel checks, we expect most sectors are likely to deliver flattish earnings with few surprises,' it said. Notably, while plantation firms may post weaker quarterly numbers due to lower crude palm oil prices, some could benefit from disposal gains and forex tailwinds.
The recent 25-basis-point cut to the overnight policy rate, announced in July, is expected to have a limited impact on second-quarter bank earnings.
'We had already factored this rate cut into our bank forecasts; we stay 'neutral' on banks,' MaybankIB Research stated.