KUALA LUMPUR (June 2): Corporate Malaysia handed in a largely disappointing first quarter earnings report card, which reflected general weakness in the economy, dragged by slowing external demand, with little help seen from the much-anticipated reopening of China.

More companies reported earnings that were below expectations in the January to March period of this year compared with the previous quarter, while there were fewer companies that managed to surprise with better-than-expected results, said Fortress Capital Asset Management chief executive officer Thomas Yong.

“The corporate earnings reflect general weakness in the economy where external demand has slowed down and the pent-up demand in consumer spending is normalising after reopening in 2022.

“Sectors that were relying on external demand generally did not do well. Demand from the US and Europe slowed due to tight monetary conditions, while China’s reopening has yet to give meaningful benefit to Southeast Asia,” Yong said.

The sectors that reported earnings that were below expectations were technology, plantation, oil and gas, and gaming.

Sectors that reported comparatively better but not exceptional results were mostly defensive ones such as banking, utilities, healthcare and telecommunications.

Rakuten Trade head of research Kenny Yee said he is not impressed with Corporate Malaysia's first quarter earnings.

“At a glance, apart from the banking sector doing well, manufacturers were affected by higher interest expenses and raw materials, while plantation companies delivered lower profits as crude palm oil prices have come down,” Yee said.    

All banks recorded year-on-year (y-o-y) profit growths, as they continued to benefit from rising interest rates. Aviation, as expected, is also doing well amid the resurgence of air travel demand following the reopening of borders and the return of Chinese tourists.

Consumer companies, however, were disappointing, no thanks to normalising demand and inflationary pressures. The semiconductor sector also largely reported lower earnings due to a slowdown in consumer demand.  

The plantation sector, meanwhile, was beset by higher production costs and lower selling prices. The looming El Nino phenomenon is expected to lift prices but impact production.

Of the top 30 companies ranked by market capitalisation that have released their results for the January-March quarter, 13 showed y-o-y declines — as opposed to 17 recording improvements. On a quarter-on-quarter basis, 16 reported declines while 14 saw improvements.

Moving into the second half of this year, TA Investment Management Bhd chief investment officer Choo Swee Kee said the sustainability of demand will be a key challenge if there is a global economic slowdown or recession.

Choo is also wary of high inflation, which he expects will stay until the end this year — even if it has somewhat eased from its peak.

“Twin effects of slower demand and rising input costs (margin squeeze) could significantly impact corporate earnings for the rest of the year," Choo added.  
 
Still, export-oriented companies will likely do better in the coming quarters due to the stronger US dollar against the ringgit, he said.

The weaker ringgit will also benefit companies that invoice in US dollars like glove and plantation companies, or companies that earn income from foreigners such as tourism and hotels, Choo said.  

The aviation sector is also expected to perform well due to a strong rebound in air travel demand.

Domestic-oriented companies that import goods for the local market, meanwhile, will face more cost pressure. This will include tobacco companies, and food and beverage companies like Nestle (Malaysia) Bhd.