KUALA LUMPUR (Aug 30): Technology stocks failed to live up to investor expectations as the majority of companies delivered underwhelming results for the second quarter of this year (2Q2024), mainly dragged down by lower utilisation rates and profit margins.

According to an analysis of the results reported up until Wednesday, Aug 28, CIMB Securities noted that all the technology companies under its coverage — Inari Amertron Bhd (KL:INARI), Malaysian Pacific Industries Bhd (KL:MPI), Unisem (M) Bhd (KL:UNISEM), and ViTrox Corporation Bhd (KL:VITROX) — reported 2Q2024 results below expectations.

"CTOS Digital Bhd (KL:CTOS) also reported results that were below expectations, driven by lower-than-expected contributions from associates," CIMB Securities stated in a strategy note on Friday.

The house added that the slower-than-expected earnings recovery in the technology sector, coupled with a stronger ringgit, had partially contributed to the recent correction in the technology index.

The index, which tracks 48 stocks, has experienced a steep decline since Aug 22, falling from 69.32 points by 10.4% or 7.21 points to close at 62.11 points on Thursday.

At the time of writing on Friday, the technology index had slightly rebounded to 62.6 points.

Meanwhile, CIMB Securities said that 40% of companies in the telecommunications sector, including CelcomDigi Bhd (KL:CDB) and Telekom Malaysia Bhd (KL:TM), missed expectations due to higher costs and lower revenue.

Another underperforming sector was the automotive sector, with 33% of companies posting results below expectations, particularly Sime Darby Bhd (KL:SIME), which was impacted by wider-than-expected losses at its China motors segment and lower contributions from UMW.

In contrast, CIMB Securities highlighted that 80% of banks reporting 2Q2024 earnings outperformed expectations.

Of the five banks that have reported, four — Malayan Banking Bhd (KL:MAYBANK), RHB Bank Bhd (KL:RHBBANK), AMMB Holdings Bhd (KL:AMBANK) and Public Bank Bhd (KL:PBBANK) — exceeded expectations.

The strong performance of the four banks was driven by higher non-interest income and lower loan loss provisions.

As a result, CIMB Securities raised its earnings forecasts for banks across the board to reflect lower cost-of-funds projections.

Overall, the house reported that of the 73 companies it tracked by Wednesday, 23% posted results above expectations, 25% fell short, and 52% met expectations.

The house maintained its year-end FBM KLCI target of 1,728 points, based on 16 times price-earnings ratio, with earnings growth forecasts of 11.2% for 2024 and 8.2% for 2025.

"We will be reviewing our KLCI valuation model after the results season to reflect the higher bank earnings, which will likely be positive for overall earnings growth," it added.