PETALING JAYA: The outlook for corporate Malaysia has dimmed as the first-quarter (1Q) earnings season draws to a close, with weak results suggesting a bumpy road ahead for the rest of this year, analysts say.
This in turn implies a growing risk of underperformance for the FBM KLCI amid broad-based earnings misses and pre-emptive downgrades across several sectors.
According to CIMB Research, the overall tone of the 1Q25 results season so far has been “disappointing” due to the high proportion of earnings underperformers.
“This has triggered broad-based earnings downgrades, including pre-emptive cuts ahead of the season in response to reciprocal tariffs and macro headwinds,” the research house said in a recent report.
CIMB Research has revised its FBM KLCI earnings growth forecasts to 3.8% for this year and 6.8% for 2026, from 9.3% and 6.6%, respectively.
Based on an unchanged target price-earnings ratio multiple of 14.7 times – a modest premium to the five-year average – this implies an 81-point downside to the FBM KLCI’s current target of 1,657 points.
The research house pointed out that as of May 23, only 4% of the 47 companies under its coverage beat earnings expectations, while 34% missed.
The resulting earnings revision ratio remains weak at just 0.12 times.
The banking, telecommunications, oil and gas, consumer, and non-bank financial institution sectors were key contributors to the earnings shortfall.
“Disappointment has widened across sectors, with major FBM KLCI constituents like CelcomDigi Bhd and Public Bank Bhd
underperforming, and the oil and gas sector emerging as the most disappointing, with 67% of companies missing forecasts,” CIMB Research said.
In the banking sector, Public Bank and Affin Bank Bhd both reported below-par results, while CelcomDigi’s earnings came in under expectations.
In the oil and gas industry, Bumi Armada Bhd and Dayang Enterprise Holdings Bhd joined Yinson Holdings Bhd and Dialog Group Bhd as laggards.
On the flipside, bright spots included the plantation, building materials, and real estate investment trust (REIT) sectors, which posted notable year-on-year (y-o-y) growth.
In particular, Malayan Cement Bhd and Aeon Credit Service (M) Bhd exceeded expectations.
Meanwhile, the REIT sector showed resilience, with four out of five trusts meeting expectations and enjoying stronger rentals, occupancy rates, and festive-driven sales.
All three plantation companies under CIMB Research’s coverage – SD Guthrie Bhd, Kuala Lumpur Kepong Bhd (KLK) and Ta Ann Holdings Bhd – reported 1Q25 results that met expectations.
Collectively, the trio recorded a 1.4 times y-o-y and 2.1% quarter-on-quarter increase in net profit, supported by stronger crude palm oil and palm kernel prices.
However, the research house cautioned that downstream margins remained under pressure, weighed down by refinery and non-oleochemical segment losses, particularly at KLK, where derivative losses further dampened performance.
Overall, the underperformance across key heavyweight sectors underscored the downside risks for the index.
“The earnings cut implies a potential 81-point downside to our current FBM KLCI target of 1,657 points, highlighting the rising risk of index underperformance should earnings disappointments persist,” CIMB Research cautioned.
