KUALA LUMPUR (Sept 2): Analysts are now projecting stronger corporate earnings growth for 2026 following an improved second-quarter reporting season, yet they remain guarded on the local equity market's upside amid lingering political and geopolitical headwinds.
For the first time since December 2020, RHB said no sector under its coverage recorded an overall earnings miss, while automotive, oil and gas (O&G), transport, gaming, healthcare and rubber products beat expectations.
The research firm said earnings delivery improved significantly from the previous quarter, with the misses-to-beats ratio falling to 1.0 from 2.6 in the March quarter.
The stronger quarter prompted the research house to raise earnings forecasts for its stock basket by 0.8% for 2026 and 0.2% for 2027.
It attributed the resilience to Malaysia’s position as a net O&G exporter, robust commodity prices and the technology sector upcycle.
However, RHB downgraded the banking sector to 'neutral' on valuation grounds, while also flagging funding cost pressures and signs of weaker asset quality.
For larger-cap FBM KLCI stocks, RHB also raised earnings forecasts, driven by plantations, O&G, healthcare, telecommunications and property.
Despite the better earnings showing, RHB maintained its end-2026 FBM KLCI target at 1,750 points, saying geopolitical and global macroeconomic challenges would cap the market’s upside.
It expects the benchmark index to remain range-bound, supported on the downside by robust liquidity, and continues to favour a trading-oriented strategy with a defensive core.
RHB remains 'overweight' on plantations, energy, O&G, property, construction, basic materials, technology, healthcare and transport.
Meanwhile, TA Securities said the second-quarter reporting season marked the first upward earnings revision after two consecutive quarters of downgrades.
TA raised its earnings forecasts for 2026 and 2027, with upgrades led by transportation, O&G, telecommunications, automotive, healthcare and building materials.
Core earnings of companies under its coverage improved strongly in the second quarter, supported mainly by O&G, healthcare and gloves, banking, property and transportation, while power and utilities, gaming and media remained key drags.
Following the revisions, TA now expects corporate earnings to grow 10.6% in 2026, higher than its previous forecast of 8.5%, before moderating to 5.7% in 2027.
TA maintained its end-2026 FBM KLCI target at 1,760 points, citing limited room for valuation expansion until there is greater clarity on geopolitical tensions, the US midterm elections, and domestic political developments.
The research house maintained 'overweight' calls on construction, consumer, healthcare, insurance, plantations, property, power and utilities, and telecommunications.
It downgraded transportation to 'underweight' from 'neutral', mainly after cutting Westports Holdings Bhd (KL:WPRTS) to 'sell' following the stock’s recent rally.
TA also flagged persistent foreign fund outflows as a near-term concern, saying elevated oil prices and the risk of a more restrictive global interest-rate environment could continue to weigh on foreign appetite for emerging-market equities.