This article first appeared in The Edge Malaysia Weekly on September 2, 2024 - September 8, 2024

THE total net earnings of the FBM KLCI’s 30 component stocks in the second quarter (2Q) of the year amounted to RM18.7 billion, representing 22.3% growth compared with the same quarter a year ago.

All in, 23 companies reported better earnings year on year (y-o-y), led by IOI Corp Bhd (KL:IOICORP), whose net profit jumped ninefold to RM346.9 million, boosted by a net foreign currency translation gain of RM24.3 million on foreign currency-denominated borrowings and deposits.

Tenaga Nasional Bhd’s (KL:TENAGA) net profit more than quadrupled y-o-y to RM1.44 billion as it recorded higher electricity sales, a favourable foreign exchange (forex) translation and lower net finance costs.

Sunway Bhd (KL:SUNWAY) — which replaced AMMB Holdings Bhd (KL:AMBANK) as a new entrant to the benchmark FBM KLCI two months ago following the semi-annual review — saw its net earnings shoot up 80.4% y-o-y to RM270.47 million on stronger operating performance across all business segments, coupled with a gain of RM62.4 million from the redemption of an investment and share of gain of RM27 million from the newly acquired investment properties of an associate.

However, the net earnings of Sime Darby Bhd (KL:SIME) slumped 85.7% y-o-y to RM89 million from RM622 million a year earlier, mainly due to one-off impairments and provisions at its automotive division, losses at automotive operations in China, higher finance costs and deferred tax provisions.

Nestlé (Malaysia) Bhd (KL:NESTLE), whose share price slipped below RM100 for the first time in more than six years, saw its net profit halve y-o-y to RM93.6 million, driven by a drop in domestic sales, reflecting subdued consumer sentiment and constrained purchasing power.

Quarter on quarter (q-o-q), total net earnings were up 7.2% against RM17.5 billion in 1Q2024, with 20 companies delivering better financial results.

Apart from IOI Corp, other best-performing firms were Axiata Group Bhd (KL:AXIATA) (+124.8%), Kuala Lumpur Kepong Bhd (KL:KLK) (+105.1%) and Tenaga (+101.8%). Meanwhile, Genting Bhd (KL:GENTING) saw a sharper decline in tourist arrivals, resulting in a 59.3% q-o-q decline in its net profit to RM239.7 million.

Heads of research houses The Edge spoke to say broader 2Q corporate earnings were within their expectations.

MIDF Research head Imran Yassin Yusof notes that the oil and gas sector showed positive surprises, especially companies in the upstream segment such as Deleum Bhd (KL:DELEUM), Bumi Armada Bhd (KL:ARMADA) and Malaysia Marine and Heavy Engineering Holdings Bhd (KL:MHB).

Nonetheless, he observes that negative surprises were seen in the consumer, glove and technology sectors. “The glove sector came in below expectations, understandably because the situation has not improved as we had expected. There are still a lot of difficulties in the glove sector.”

“Then, a lot of consumer discretionary stocks, such as Rhong Khen International Bhd (KL:RKI) (formerly known as Latitude Tree Holdings Bhd), were below expectations,” says Imran.

He says consumer staples, on the other hand, did quite well. For example, Leong Hup International Bhd (KL:LHI) saw net profit surge 48.4% y-o-y to RM96.5 million, driven by higher prices and sales volume of day-old chicks and broiler chickens in Indonesia and the Philippines, as well as higher feedmill margins. “The only consumer staples that didn’t meet our expectations are Nestlé and MSM Malaysia Holdings Bhd (KL:MSM).”

On the tech sector, Imran says, “Our expectations were already very conservative, so when the earnings came below that, it showed it [the situation] was even worse.”

Given that most of the corporate earnings were in line with expectations, with just a few negative surprises, Imran believes this bodes well for the local stock market.

“In terms of growth trajectory, apart from valuation recovery, it is also going to be driven by corporate earnings. GDP (gross domestic product) also came in better. All that seems to be in sync. So we see that the FBM KLCI has legs,” he says, maintaining the benchmark index target at 1,750 points.

Overall, Imran believes corporate earnings will continue to expand on a full-year basis for 2024.

Meanwhile, Rakuten Trade head of research Kenny Yee is of the view that there could be some upward revisions to this year’s earnings estimates. “There are more positive than negative surprises. I think the situation in the second half will continue to improve. Our FBM KLCI target is 1,760 points.”

The FBM KLCI has risen 15.4% since early this year to close at 1,678.8  points last Friday.

Following the recent upgrade of bank earnings across the board, CIMB Securities sees an upside potential to its FBM KLCI earnings forecasts.

“The banking sector was a key bright spot, with four out of five banks reporting better-than-expected earnings,” it says in an Aug 30 note.

However, it notes that all the companies under its coverage in the technology sector posted results that were below expectation, primarily due to lower-than-expected utilisation rates and profit margins.

We look at how the various sectors performed in 2Q2024.

Driven by higher non-interest income, most banks saw better earnings y-o-y and q-o-q, beating earnings forecasts made in the first half of the year.

During the quarter under review, Malayan Banking Bhd’s (KL:MAYBANK) net profit came in at RM2.53 billion, up 8.2% y-o-y, underpinned by lower provisions and tax expenses, while Public Bank Bhd’s (KL:PBBANK) net profit expanded 10% y-o-y to RM1.78 billion.

However, RHB Bank Bhd (KL:RHBBANK), the country’s fourth largest bank by assets, said last Tuesday that its net profit fell 11% in the second quarter from a year earlier, dragged down by provisions.

A mixed bag of financial results was recorded by the consumer sector for 2Q2024. While poultry players — QL Resources Bhd (KL:QL) and Leong Hup reported better profits, familiar consumer names such as Padini Holdings Bhd (KL:PADINI) and AEON Co (M) Bhd (KL:AEON) saw lower earnings.

Padini’s net earnings more than halved y-o-y to RM26.3 million on the back of a decline in gross profit margins amid rising staff costs as well as lower outlet sales, with same store sales falling 10.7%. Despite that, the home-grown fashion retailer has proposed to undertake a one-for-two bonus issue to reward its shareholders.

AEON attributed its lower profit — down 7.7% y-o-y to RM27.9 million — to the timing of the festive seasons, which did not coincide with the quarterly earnings.

MR. DIY Group (M) Bhd (KL:MRDIY) reported flat net earnings of RM155.2 million, as higher revenue was partially offset by higher expenses associated with its business expansion.

Tech earnings have been closely followed to gauge the growth prospects of tech firms, but the sector’s performance was a negative surprise.

Inari Amertron Bhd (KL:INARI), the largest local tech firm by market cap, was one of the disappointments, reporting a 17.5% y-o-y drop in net profit to RM55.7 million, due to unfavourable forex movements, higher operating costs and early staging of new products.

Automated test equipment manufacturer ViTrox Corp Bhd (KL:VITROX) saw its second-quarter net profit fall 25.4% y-o-y to RM28.1 million, dragged down by R&D investments as well as forex losses.

However, automation solutions provider Greatech Technology Bhd (KL:GREATEC) fared better as its net earnings expanded 26.3% y-o-y to RM48.4 million on the back of a higher order book.

Malaysian Pacific Industries Bhd (KL:MPI) saw net profit jump nearly elevenfold y-o-y to RM83 million, thanks to a higher contribution from its Asian and European market segments, as well as a reversal from its executive share scheme provision during the quarter.

Most construction stocks, which saw a decent rally in share prices in the past year, chalked up better earnings in 2Q2024.

Sunway Construction Group Bhd (KL:SUNCON) saw its net profit rise 17.8% y-o-y to RM38.87 million while Kerjaya Prospek Group Bhd’s (KL:KERJAYA) net earnings were up 17.5% y-o-y to RM37.1 million.

However, IJM Corp Bhd’s (KL:IJM) net profit fell 13.68% y-o-y to RM86.88 million due to unrealised foreign exchange and fair value losses despite better revenue reported in the quarter under review.

Gains on exceptional items helped boost the earnings of some property stocks.

Sime Darby Property Bhd (KL:SIMEPROP), for one, saw its net profit more than double y-o-y to RM161.96 million, thanks to land sales and higher sales of industrial and high-rise homes.

IOI Properties Group Bhd (KL:IOIPG) bene­fited from a fair value gain of investment properties totalling RM1.9 billion, which led to its net profit jumping more than five times y-o-y to RM1.55 billion.

Largely driven by land sales, S P Setia Bhd’s (KL:SPSETIA) net profit also jumped to RM295 million from RM43.1 million in the same quarter a year earlier.

However, UEM Sunrise Bhd (KL:UEMS) posted a weaker set of financial results, with net earnings falling 23.7% y-o-y to RM18.84 million, owing to higher operating expenses and reduced contributions from its joint ventures.

Most oil and gas upstream players posted decent financials, aided by better utilisation rates.

Perdana Petroleum Bhd (KL:PERDANA) even reported the highest quarterly net profit in 16 years, after its net earnings jumped fourfold y-o-y to RM34.7 million on the back of higher utilisation rates of accommodation work barges with better margins.

The net earnings of both Dayang Enterprise Holdings Bhd (KL:DAYANG) and Bumi Armada Bhd (KL:ARMADA) more than doubled y-o-y to RM131.44 million and RM265.96 million, respectively.

Dayang’s profitability was boosted by higher vessel utilisation rates and improved daily charter rates, while Bumi Armada gained from higher margins and contributions from Armada Kraken floating, production, storage and offloading and Armada Olombendo.

However, Hibiscus Petroleum Bhd’s (KL:HIBISCS) net profit fell 11.8% y-o-y to RM108.68 million due to equipment impairment and higher expenses. 

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