This article first appeared in The Edge Malaysia Weekly on June 3, 2024 - June 9, 2024

THE total net earnings of the FBM KLCI’s 30 component stocks in the first quarter of this year came in at RM17.8 billion, 7.4% higher than the RM16.5 billion recorded in 1Q2023, with 20 companies reporting better earnings, led by Genting Bhd (KL:GENTING) (+500.9%), Sime Darby Plantation Bhd (KL:SIMEPLT) (+205.8%), Press Metal Aluminium Bhd (KL:PMETAL) (+44.7%) and Sime Darby Bhd (KL:SIME) (+41.7%).

Genting’s stellar net earnings of RM588.9 million was driven by the higher contribution from its leisure and hospitality segment in Malaysia and Singapore. Press Metal attributed its strong earnings of RM408 million to higher sales and a stronger US dollar, while higher sales from Sime Darby’s motor vehicle and heavy equipment segments pushed up its net profit to RM340 million.

Nevertheless, the total net earnings of the FBM KLCI component companies in 1Q2024 were flat when compared with 4Q2023, with 14 companies reporting a lower profit.

It is worth noting that Genting was still one of the top performers as its net profit jumped 292.3% quarter on quarter (q-o-q), while the net earnings of Petronas Chemicals Group Bhd (PetChem) (KL:PCHEM) and Maxis Bhd (KL:MAXIS) surged 496.4% and 530.4%, respectively.

PetChem says the better earnings were thanks to its improved margin and lower maintenance costs, while Maxis posted a much higher earnings before interest and tax (Ebit) margin of 27.2%, compared with 13.1% in the preceding quarter that included an accelerated asset depreciation and a write-off.

The worst-performing companies were Sime Darby (-85.1%), Genting Malaysia Bhd (KL:GENM) (-75.9%) and IOI Corp Bhd (KL:IOICORP) (-63.3%). Genting Malaysia and IOI Corp were mainly affected by foreign exchange translation losses, while Sime Darby reported a RM2 billion gain on the disposal of Ramsay Sime Darby Health Care in the previous quarter.

On the whole, analysts see construction, property and domestic-centric businesses managing to sustain their growth momentum after reporting a decent 1Q2024 performance. They believe data centre development in particular bodes well for the construction, property and building material industries.

Malacca Securities Sdn Bhd head of research Loui Low says corporate earnings were lower than expected on a quarterly basis, including for YTL Power International Bhd (KL:YTLPOWR), whose net profit dropped 17.3% to RM698.7 million from RM845.1 million in 4Q2023, mainly due to lower pool prices and retail margin in the power generation segment.

The better year-on-year (y-o-y) earnings growth is already being reflected in the share price movements. The FBM KLCI is up 9.8% year to date, having touched a recent high of 1,632.79 points before closing at 1,596.68 points last Friday.

“We will not see a stronger tone, at least in the near term. But generally, it should trend higher in the second half of the year,” says Low, who sees the FBM KLCI reaching 1,650 to 1,700 points.

Domestic-centric businesses may continue to surprise on the upside, says Inter-Pacific Securities head of research Victor Wan.

“Construction will continue to do well, with the revival of property sales. However, the manufacturing sector is not quite there yet, especially export-related ones,” he tells The Edge.

As for the tech sector, Wan believes “things are still quite dicey”, judging from some of the latest leading indicators coming out of Europe and the US. “But in any case, Asia appears to be on a firmer footing,” he notes.

Following the strong rally of the FBM KLCI, Wan too sees a likely pause in the rest of this quarter and the early part of 2H2024.

“Usually the market comes alive towards the later part of the third quarter and fourth quarter. I would expect the same at this point,” he says.

Wan anticipates the 2Q2024 results to be “stable to slightly better” after adjusting for seasonal factors such as the Chinese New Year in the first quarter.

Rakuten Trade head of research Kenny Yee maintains his 16% earnings growth target for the FBM KLCI stocks, with the target for the benchmark index set at 1,660 points.

One of the surprises of this earnings season came from number forecast operators Sports Toto Bhd (KL: SPTOTO) and Magnum Bhd (KL:MAGNUM), he says. Sports Toto, whose net profit almost tripled to RM68.5 million, said stronger sales were recorded during the festive period in February with a lower prize payout. For Magnum, despite a higher prize payout ratio, lower operating expenses and finance cost helped its net profit grow 64.7% to RM26 million.

Low is positive on building material and metal stocks in view of the strong commodity prices, coupled with robust construction and property development activities.

Sunway Bhd (KL:SUNWAY), which is likely to be a new entrant to the FBM KLCI following the semi-annual review, replacing AMMB Holdings Bhd (KL:AMBANK), saw its net profit expand 21.6% y-o-y to RM172.2 million, but narrow 35.2% q-o-q due to lower contribution from its business segments, namely construction, property development, healthcare, quarry and trading and manufacturing.

We look at how the various sectors performed in 1Q2024.

Most banks posted better earnings y-o-y and q-o-q, except for Public Bank Bhd (KL:PBBANK), which saw its net profit slip 3.5% y-o-y to RM1.65 billion, mainly due to higher personnel costs and provisions. It booked allowances for impairment on loans, advances and financing totalling RM63.4 million, compared with RM1.54 million in the previous corresponding quarter.

Similarly, RHB Bank Bhd (KL:RHBBANK) was impacted by higher provisions, leading to a 4.1% y-o-y drop in net earnings to RM730.2 million.

Higher non-interest income helped push AMMB Holdings’ net profit 11.5% higher y-o-y to RM476.54 million, although it was 12.3% lower q-o-q on the back of a one-off tax credit of RM537.6 million recorded in 4Q2023.

As raw material prices stabilised, consumer players continued to enjoy profitability during the quarter in review.

Mr DIY Group (M) Bhd’s (KL:MRDIY) financials continued to improve, with a 13.4% y-o-y rise in net profit to RM144.9 million, underpinned by sales from new stores as well as a margin expansion. The home improvement products retailer is expected to open another 180 stores this year and surpass its target of 2,000 stores by 2028.

Poultry players QL Resources Bhd (KL:QL) and Lay Hong Bhd (KL:LAYHONG) reported record high annual earnings after their latest quarterly net profit surged 34.7% and 103.1% y-o-y respectively to RM98.7 million and RM26.7 million.

However, convenience chain store operator 7-Eleven Malaysia Holdings Bhd (KL:SEM) was hit by higher operating expenses as a result of its expansion of new stores and longer operating hours. Its net earnings slipped 18.1% y-o-y to RM12.84 million.

Tech firms reported mixed earnings for 1Q2024. Inari Amertron Bhd (KL:INARI) saw its net profit expand 29% y-o-y to RM73.7 million, driven by higher loading volume and currency gains.

Greatech Technology Bhd (KL:GREATEC) registered higher net earnings of RM32 million, thanks to a net foreign exchange gain of RM11.53 million and a reversal of impairment on contract assets and trade receivables amounting to RM4.94 million.

Pentamaster Corp Bhd [KL:PENTA] was among those reporting lower earnings, with its net profit slipping 8.9% y-o-y to RM19.4 million, attributed to lower other income and share of loss of associates. UWC Bhd [KL:UWC] suffered a sharp decline of 75% y-o-y in net earnings to RM4.8 million for the November 2023 to January 2024 period, owing to the cyclical downturn of the semiconductor sector.

Among the big four telcos, three — Telekom Malaysia Bhd (KL:TM), CelcomDigi Bhd (KL:CDB) and Maxis — registered higher earnings.

TM said lower operating costs sent its net profit higher 28.7% y-o-y to RM424.8 million, while CelcomDigi was aided by a writeback on provisions of RM51.43 million, which led to an 18% y-o-y growth in net earnings to RM376.5 million. Maxis benefited from higher service revenue and cost control as its net profit rose 10.3% to RM353 million.

Axiata Group Bhd (KL:AXIATA), however, continued to reel from higher foreign exchange losses and finance costs, with its net profit declining 18.8% y-o-y to RM60 million.

Plantation players posted mixed results despite crude palm oil prices trading at an average of RM3,982 a tonne in 1Q2024, which was about the same level in 1Q2023.

Sime Darby Plantation Bhd’s (KL:SIMEPLT) net profit tripled y-o-y to RM211 million on the back of lower tax and strong downstream operations. Genting Plantations Bhd (KL:GENP) managed to sell palm products at higher prices, which offset the impact of lower sales in its downstream manufacturing segment. With that, its net earnings gained 10.4% y-o-y to RM42.8 million.

IOI Corp Bhd (KL:IOICORP), however, suffered a net loss of RM84.2 million on translation loss on foreign currency borrowings and deposits, resulting in its net earnings declining 38% y-o-y to RM123.1 million. Dragged down by a lower contribution from its manufacturing segment, Kuala Lumpur Kepong Bhd’s [KL:KLK] net profit fell 38.6% y-o-y to RM117.07 million.

With oil prices staying above US$80 a barrel most of the time in 1Q2024, oil and gas firms chalked up handsome gains from robust activities during the quarter.

Driven by higher upstream output, Dialog Group Bhd’s (KL:DIALOG) net profit expanded 19% y-o-y to RM156.2 million, while Bumi Armada Bhd’s (KL:ARMADA) net profit climbed 19.7% y-o-y to RM240.54 million on higher vessel operations revenue.

Petronas Gas Bhd (KL:PETGAS), which benefited from lower input prices, saw its net profit rise 7.6% to RM456.65 million. However, Petronas Dagangan Bhd, which was affected by higher product cost and operating expenditure, reported a 25.1% y-o-y drop in net profit to RM226 million.

Other than Genting, its 49%-owned subsidiary Genting Malaysia Bhd (KL:GENM) also posted a decent performance, returning to the black with a net profit of RM57.8 million from a net loss of RM27.4 million in the previous corresponding quarter.

Thanks to higher passenger volumes, Malaysia Airports Holdings Bhd (KL:AIRPORT) saw more than a threefold rise y-o-y in its net profit to RM190 million.

Capital A Bhd (KL:CAPITALA), however, was hit by a massive foreign exchange loss and depreciation totalling RM729.4 million, causing it to fall into the red with a net loss of RM91.6 million against a net loss of RM57.1 million in 1Q2023, despite revenue more than doubling to a record high of RM5.24 billion from RM2.52 billion.

Property development firms mostly delivered mixed financial results during the quarter in review, with those reporting stronger earnings seeing renewed interest in property purchases.

The net earnings of S P Setia Bhd (KL:SPSETIA) jumped 39.46% y-o-y to RM77.3 million, lifted by both its domestic business and its operations in Vietnam.

Eastern & Oriental Bhd (KL:E&O) saw its net profit triple y-o-y to RM133.61 million, while Sime Darby Property Bhd’s net earnings doubled y-o-y to RM123.6 million as its quarterly revenue hit a record high on higher sales and successful project executions.

UEM Sunrise Bhd [KL:UEMS], in which Khazanah Nasional Bhd holds 69.56% equity interest, was impacted by lower sales and higher operating expenses, resulting in a decline in net profit to RM8.2 million from RM15.4 million a year earlier.

Construction firms remained the favourites of the local stock exchange as the sector benefited from buoyant market activity, especially with more investments pouring into data centres and infrastructure projects.

As one of the key beneficiaries, Sunway Construction Group Bhd (KL:SUNCON) recorded higher billings in newer projects, translating into a 16.4% y-o-y increase in net profit to RM32.4 million.

Similarly, IJM Corp Bhd’s (KL:IJM) net profit leapt more than tenfold y-o-y to RM305.5 million, thanks to a sharp rise in other operating income.

Kerjaya Prospek Group Bhd saw its net earnings grow 14% y-o-y to RM33.55 million, driven by improved progress in construction work activity. 

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