KUALA LUMPUR (Sept 4): Corporate Malaysia's earnings for the second quarter of this year have largely been in line with analysts' expectations, with 58 of the top 100 companies on Bursa Malaysia in terms of market capitalisation either meeting or beating analysts' estimates, while 42 missed consensus estimates.

Overall, these top 100 companies’ aggregate earnings rose 15.9% year-on-year (y-o-y) and 10.5% quarter-on-quarter (q-o-q), with 49 companies registering both y-o-y and q-o-q increases in their latest reported quarterly earnings.

Utilities, oil and gas (O&G) and financial services are the sectors that posted results that largely met or beat earnings consensus in the second quarter of 2024, while telecommunications, technology and construction were the ones that disappointed when compared against their earnings forecasts.

Out of the top 100 companies, the top five whose earnings outperform the most (in terms of percentage) against analysts’ consensus, based on Bloomberg data, were Tenaga Nasional Bhd (KL:TENAGA), which was helped by better electricity sales; IHH Healthcare Bhd (KL:IHH), which saw growth in inpatient admissions; Telekom Malaysia Bhd (KL:TM), which was supported by lower depreciation and amortisation charges; IOI Corp Bhd (KL:IOICORP), which was helped by better performance across its segments; and Hong Leong Industries Bhd (KL:HLIND), which was boosted by stronger motorcycle sales.

The five companies whose earnings missed the most (in terms of percentage) against forecasts were Capital A Bhd (KL:CAPITALA), dragged by higher-than-expected fuel cost and foreign exchange losses; Sime Darby Bhd (KL:SIME), which was hurt by one-off impairments and losses in China; Kuala Lumpur Kepong Bhd (KL:KLK), which was dragged by losses in its refinery segment; Vitrox Corp Bhd (KL:VITROX), which was hurt by lower sales and weaker margin; and Inari Amertron Bhd (KL:INARI), which saw lower sales which resulted in lower plant utilisation.

Meanwhile, there were 19 companies that posted both y-o-y and q-o-q earnings improvement, but still missed consensus estimates. Among them were KLK, Genting Malaysia Bhd (KL:GENM), PMB Technology Bhd (KL:PMBTECH), Frontken Corp Bhd (KL:FRONTKN) and CTOS Digital Bhd (KL:CTOS).

To determine if analysts are more optimistic or pessimistic about a company's prospects after the 2Q earnings season, their latest earnings per share (EPS) forecast was compared against their forecasts three months ago.

Overall, there were 42 upward revisions, 47 downward revisions and 11 unchanged EPS forecasts for the top 100 market cap companies listed on Bursa Malaysia.

Based on simple average, analysts seem to be less optimistic about the prospects of these top 100 companies — overall EPS forecasts were cut by 1.7% versus three-months ago — as they updated their earnings computations. The downward revisions ranged from 0.4% to 9.2%, depending on sector, while the upward revisions ranged between 0.2% to 6.1%.

Analysts were most upbeat about the prospects of O&G companies, as EPS forecasts for the sector were raised by an average 6.1%, followed by automotive companies, with estimated EPS lifted by an average 4.1%, while transportation-related companies saw their earnings prediction increased by an average 1.3%.

The reason cited for bullishness on O&G companies was the generally upbeat outlook for offshore services providers, notably for Dayang Enterprise Holdings Bhd (KL:DAYANG), which saw its EPS estimate raised 16.5%,  and Bumi Armada Bhd (KL:ARMADA), which saw its EPS estimate raised 10.4%.

As for automotive companies, new car and motorcycle models were the key reasons cited for the upward EPS revisions for Bermaz Auto Bhd (KL:BAUTO) — increased 4.7% — and Hong Leong Industries — increased 6.7%.

The transport sector was mostly lifted by Bintulu Port Holding Bhd’s (KL:BIPORT) 8.1% increase in EPS forecast, as analysts accounted for lower finance cost and higher cargo throughputs in the Samalaju Industrial Park.

The sector that analysts were most downbeat on was technology, as they cut their EPS predictions for 11 out of 13 technology-related companies, as 10 of them missed consensus estimates in their latest filings. On average, forecasts on their earnings were cut by 9.2% compared to three-months ago.

They cited soft demand for automotive and the renewal of equipment in the US due to policy uncertainties, low order visibility as order deferments became common due to business uncertainties, slower recovery of demand for smartphone and personal computers in China; and impending foreign exchange losses because of a strengthening ringgit.

Tech companies that saw their EPS forecast cut the most were D&O Green Technologies Bhd (KL:D&O), by 25.6%; Sam Engineering and Equipment (M) Bhd (KL:SAM), by 23.7%; Vitrox Corp, by 21.4%; Nationgate Holdings Bhd (KL:NATGATE), by 15.3%; and Unisem (M) Bhd (KL:UNISEM), by 13.3%.

Another sector that analysts appear less than optimistic on was plantation, with consensus EPS prediction lowered by 6.7%, followed by the consumer sector, where the EPS forecast was cut by an average 3.6%.

In the plantation sector, analysts trimmed their EPS forecasts on FGV Holdings Bhd (KL:FGV) by 19%, KLK, by 9.4% and IOI Corp, by 5.8%. Broadly, the sector is expected to see improvement in subsequent quarters as yields improve but adverse vegetable oil prices may be a key drag. In the downstream segment, oleochemical sales are recovering from a low as the effects of demand normalisation from over-ordering in 2021-22 taper off. But there is concern that a stronger ringgit may translate to lower earnings from export sales in the downstream segment.

As for the consumer sector, companies with their EPS prediction cut the most were Nestle (Malaysia) Bhd (KL:NESTLE), by 17.9%, Guan Chong Bhd (KL:GCB), by 10.9%, and Genting Malaysia, by 6.9%. Analysts are getting more cautious about Nestle’s outlook after its earnings miss, which render a change in view given the company is facing high material costs, intensifying competition and limited room for price hike that could affect the company to recover fully from boycott effects.

Analysts have also turned more cautious about Guan Chong after the company’s operating cashflow reached negative RM1.1 billion due to rising inventories and trade debtors amid port congestions. More negatively, these were financed by short-term loans, which could result in higher interest expenses that could weigh on operating margins.

Genting Malaysia’s latest results, which missed consensus estimates, also prompted analysts to revise its EPS downwards to account for weaker-than-expected earnings growth momentum despite footfall returning to pre-pandemic volumes. Higher interest expenses and associate losses from the acquisition of Empire Resorts Inc were the other factors for the downward revision.

Of the top 100 companies in terms of market cap, the ones that saw their EPS forecasts raised the most were Dayang Enterprise (16.5%), Top Glove Corp Bhd (KL:TOPGLOV) (15.8%), Bursa Malaysia Bhd (KL:BURSA) (14.1%), S P Setia Bhd (KL:SPSETIA) (10.8%), Bumi Armada (10.4%) and Bintulu Port Holdings (8.1%).

Companies with the deepest cut in their EPS forecasts were UOA Development Bhd (KL:UOADEV)(33.3%), D&O Green Technologies (25.6%), Sam Engineering and Equipment (23.7%), Vitrox Corp (21.4%), FGV Holdings (18.9%) and Nestle (17.9%).

There were 24 companies which posted better earnings in terms of y-o-y and q-o-q, but still saw analysts trimming their EPS forecasts. Among them were Nationgate Holdings, Petronas Chemicals Group Bhd (KL:PCHEM), Frontken Corp, CelcomDigi Bhd (KL:CDB), KLK and Malaysian Pacific Industries Bhd (KL:MPI).

Meanwhile, companies that reported earnings that beat estimates but still saw analysts cutting their EPS forecasts included Allianz Malaysia Bhd (KL:ALLIANZ), IOI Properties Group Bhd (KL:IOIPG), Petronas Chemicals, Malaysian Pacific Industries, IOI Corp, Genting Plantation, YTL Power International Bhd (KL:YTLPOWR), and YTL Corp Bhd (KL:YTL).

There were also companies that missed earnings estimates but saw analysts raise their EPS forecasts. Among them were Top Glove Corp, Affin Bank Bhd (KL:AFFIN), Axiata Group Bhd (KL:AXIATA), SD Guthrie Bhd (KL:SDG) and IJM Corp Bhd (KL:IJM).

Lastly, analysts appeared to be more upbeat about the market cap heavy-weighted banks, which constitute about 34% of the top 100 companies in Bursa Malaysia. On average, their EPS forecasts were lifted by 1.1%. Banks that saw the highest EPS upward revision were: Affin Bank, by 6.6%; AMMB Holdings Bhd (KL:AMBANK), by 5.1% and RHB Bank Bhd (KL:RHBBANK), by 2.3%. Banks with the largest downward EPS revisions were MBSB Bhd (KL:MBSB), down 5.2%; and BIMB Holdings Bhd (KL:BIMB), down 1.5%.