5 days ago
Earnings in 1Q25 fail to excite
KUALA LUMPUR: It was an underwhelming results season for many companies in the first quarter of the year (1Q25).
The benchmark FBM KLCI saw a reflection of this sentiment as profit-taking became apparent in the second half of May: at the period of time when most companies reported their results.
The earlier strong performance in the benchmark index since the US tariff-induced sub-1,400 points year-to-date low on April 9 provided room for bullish investors to buy into stocks then.
The upward momentum lasted until mid-May, when the market saw strong profit-taking as foreign funds took the opportunity to take profit and reduce their stakes with the FBM KLCI giving back some of its gains.
Even as the FBM KLCI's price-to-earnings valuation sits at slightly below historical averages at circa 13.93 times, fund managers say the market needs more catalysts to sustain any move higher and the recent disappointing 1Q25 results appears to have failed to deliver on this front.
At last Friday's close, the FBM KLCI stood at 1,508.35 points.
Whether bargain hunting will emerge sooner or later will also depend on how trade talks with the United States are resolved and progress forward eventually since this would also affect the economic outlook as well.
The local market price action also appears to be muted to the latest attempt of a policy change on US tariffs by the US Court of International Trade, which had attempted to block President Donald Trump's order on tariffs tomorrow.
The decision was overruled by a temporary reinstatement of the tariffs by a US federal appeals court a day later.
Investors participating in the local market appear to be numbed by these latest developments that were supposed to be positive for risk sentiment; and present share price price valuations may have already factored in this possibility as well, said analysts.
Apex Securities' head of research Kenneth Leong said while the 1Q25 results season was less exciting, there were also concerns if the strong financial performance in 2024 was sustainable.
'After raking in a relatively strong performance last year, sustainability comes into question as to whether projected earnings growth could play catch up.
'Most sectors such as banking, construction, property, telcos (telecommunication companies) and plantations came in line with expectations,' Leong told StarBiz.
He pointed out that the technology sector had underperformed with key players including Inari Amertron Bhd , Frontken Corp Bhd and QES Group Bhd all coming in below expectations on weaker demand as well as unfavourable currency exchange.
Also, Leong said another factor for the recent weak sentiment is the softer economic growth outlook after the 1Q25's gross domestic product (GDP) grew by 4.4% year-on-year.
'GDP growth continues to taper for the third straight quarter and the trend could remain in place in the subsequent quarters ahead. Our in-house projection is a GDP growth of 4.2% in 2025,' he said.
Leong anticipates investors may continue to be sidelined as there is much prevailing uncertainties from international trade developments.
'While trade tensions appear to have eased in recent weeks, the ultimate impact of tariff and other policy changes remains uncertain,' Leong said.
Meanwhile, portfolio manager at Tradeview Capital Ng Tzyy Loon said the 1Q25 earnings reports have generally been quite muted with some companies coming in below expectations.
Ng expects a further slowing down in year-on-year GDP growth in the 2Q25 and that more clarity should emerge on this front after mid-2025.
'This (clarity) would come once the trade and employment data better reflect the current situation and enable governments and central banks to take necessary measures.
'Of course, this is provided that there's no more drastic change in Trump's tariff plans,' Ng said.
He advised investors who are now looking to bargain hunt to focus on domestic-driven businesses and stocks with great liquidity, noting that this would provide some cushion in the event of any future significant sell-downs.
But Ng also highlighted the highly fluid nature of the US tariff talks, which at times seem to make progress, at other times appear to regress, and occasionally seem to be going nowhere.
'This serves as a reminder to the market participants that we are not out of the woods yet,' he noted.
Former investment banker and private investor Ian Yoong said the performance of companies listed on Bursa Malaysia has generally been disappointing even after taking into consideration seasonal factors.
'The exception was the construction sector where the outperformance has been helped by strong order books.
'The banking sector too has fared well in the first quarter of 2025,' Yoong said.
Sentiment wise, Yoong said investor confidence from both retailers and institutional investors are still at a low.
'This is mainly attributed to the imposition of tariffs in the US and the trepidation brought about by the flip-flopping in decision making of the current US administration.
The United States and European equity markets have fared well notwithstanding the same factors that have adversely affected our domestic market.
'The steep fall in many stock prices especially in the small and mid-cap sector is grossly overdone. This presents a golden opportunity for long term investors,' Yoong said.
Moving forward, Leong said the plantation sector which has generally delivered a strong set of numbers in the first quarter may be impacted by the slightly weaker crude palm oil price - especially for planters with high exposures to upstream operations.
'On a brighter note, we expect the construction sector's earnings to remain sustained, backed by execution of their sizeable order books,' Leong added.
