KUALA LUMPUR: The recent robust earnings results for the second quarter of 2024 (Q2 2024) signal that corporate earnings have turned the corner.
Research firms said the earnings adjustments which were more upward than downward, mirrored the quarter's positive momentum.
Public Investment Bank Bhd (PublicInvest Research) said earnings momentum held steady, an encouraging development in itself considering the relatively strong showing in the immediate preceding quarter, with hits (above and/or in-line) and misses at an equally-high 80 per cent : 20 per cent.
It said downward revisions were broader-based, though not huge in quantum as better quarters are expected ahead.
Improved operating conditions such as stronger demand aided in the performance of the oil and gas sector, while sustained improvements in consumption spending continued to be reflected in the relatively encouraging showing from the property and healthcare sectors.
"Gloves were the surprise package this current quarter with incumbents disclosing improvements in average selling prices and unit demand, though media continued to be a letdown as it struggles to maintain relevance amid a shift in industry dynamics."
"Performance of structurally-critical index heavyweights like banking, plantations and telecommunications remained steady meanwhile," it said in a note.
The firm's upward revisions to index heavyweights picked up pace mainly CIMB Group Holdings Bhd, Genting Bhd, Axiata Group, IHH Healthcare Bhd. On the balance, the 2024 earnings basket is now expected to expand by 12.7 per cent while 2025 earnings will grow by 8.8 per cent.
It added that the strengthening of the ringgit was a key driver in the performance of the local bourse and reflected growing confidence in the country's fundamentals.
"With the undervaluation gap having narrowed significantly in recent weeks, this particular tailwind appears to have run itscourse. "
"That said, the US Federal Reserve (Fed) has yet to guide on the degree on its monetary loosening which may (or may not) result in a more significant weakening in the US Dollar. This may induce even greater repatriation of funds back into Malaysia, thereby giving the ringgit another upward lift," it said.
The firm still suggests buying on weakness, in anticipation of near- to medium-term strength on account of steadier economicprospects and value proposition of the local bourse.
PublicInvest Research also said the index-heavy banking sector performed well and there are still some upsides left in themarket.
Its year-end FTSE Bursa Malaysia (FBM) KLCI target is raised to 1,750 points as it expects a gradual reversion to the long-term mean of ~16x multiple to CY24 earnings.
Meanwhile, RHB Investment Bank Bhd (RHB Research) said the firm's basket of stocks saw 22.1 per cent beating expectations while 47.3 per cent were in line.
The RHB basket of stocks saw 22.1 per cent beating expectations while 47.3 per cent were in line.
It said Q2 2024's net profit rose 2.7 per cent sequentially and 10.7 per cent year-on-year (YoY).
The first half of 2024 (1H24) net profit posted a 17.6 per cent YoY increase.
Sectors that beat expectations include oil & gas, transport, gaming, healthcare andutilities, while technology, basic materials and property missed.
It added earnings revisions were also net positive for large cap stocks in the benchmark FBM KLCI up 0.4 per cent and 0.1 per cent for financial year 2024 (FY24) and FY25.
"The macroeconomic backdrop remains positive, coupled with progress on domestic reform initiatives."
"Business and investor sentiment will tick higher with the ringgit gaining ground, as the Fed prepares to start its rate cutting cycle at this week's Federal Open Market Committee (FOMC) meeting. We expect the market to be well supported by the pooling of domestic liquidity as the ringgit bottoms out to set the stage for the return of foreign portfolio funds," it said.
RHB Research has an "Overweight" call on the property, construction, technology, healthcare, basic materials, oil & gas, utilities and rubber products sectors. It made no change to its FBM KLCI target for 2024 of 1,720 points.