Less positive earnings surprises from recent earnings period
KUCHING: With the end of the financial year 2023 (FY23) results period, analysts highlight noticeable trends in earnings reports of stocks under coverage including non-FBM KLCI component stocks.
The team at Kenanga Investment Bank Bhd (Kenanga Research) saw that the slowdown in consumer demand globally that inflicted pain on the palm oil downstream industry as well as consumer electronics manufacturing services (EMS) players.
“The slowdown in consumer spending locally that weighed down on performance of consumer discretionary players and health supplement makers.
“The prolonged geo-political tensions in the Middle East, particularly the escalating conflict in the Red Sea that hurt sales in the Middle East market and delayed shipments to Europe.”
On a more optimistic tone, Kenanga Research said the easing in operating cost, particularly personnel cost and improved pricing power, buoyed earnings of oil & gas support services providers.
It also guided tech players for an upbeat outlook for 1Q24.
“We now project FBM KLCI earnings to grow at 16.3 per cent in 2024 forecast, followed by a 6.2 per cent growth in 2025. We maintain our end-2024 FBM KLCI target of 1,605 points.
“With central banks in advanced economies poised to cut rates this year—from Jun 2024 for the Fed based on the latest Fed Funds futures—EM assets will become attractive again given a lower risk-free return of DM assets.
“Policy easing in advanced economies will also set in motion a more synchronised global economic recovery, fuelling an export boom in the largely still export-dependent EM economies.”
Kenanga Research expect the local market to lift off in a way likened to a rocket propelled by three booster engines in succession.
“We will tactically first position ourselves in beneficiaries of public spending, gradually also gravitating towards the tech and EMS sectors.
“We expect consumer spending to get softer before it gets stronger as it takes time for consumers to “internalise” subsidy rationalisation.
“We pick banks for a proxy to the return of foreign investors given the heavy weighting banking stocks command in various indices.
“We are upbeat on contractors given the imminent roll-out of MRT3 (RM45 billion), Bayan Lepas LRT (RM9.5 billion) and six flood mitigation projects reportedly to be worth RM13 billion.”