KUALA LUMPUR: The recent third quarter of 2024 (Q3 2024) corporate earnings results could potentially pose a downside risk to the KLCI target in view of weak earnings posted by big-cap companies.
CIMB Securities viewed the quarter's results as disappointing due to the high proportion of underperformers such as MISC Bhd, Petronas Chemicals Group Bhd, Nestle (M) Bhd, and Mr DIY Group (M) Bhd.
"These results could pose downside risks to our KLCI earnings forecasts. We plan to review our KLCI valuation model after the results season to incorporate the earnings revisions.
"Currently, our KLCI earnings growth forecast stands at 13.0 per cent for CY24F and 8.6 per cent for CY25F," it said.
The firm has a KLCI target of 1,732 for this year.
Out of the 39 companies tracked by CIMB Securities, 21 per cent delivered earnings that exceeded expectations while 44 per cent reported results that were below expectations.
"This results in an earnings revision ratio (the percentage of companies beating expectations versus those missing our forecasts) of 0.48x, notably lower than the 1.1x ratio seen during the Q2 2024 results season. The decline in the ratio is primarily due to a larger number of companies underperforming," it added.
Two key trends that emerged in Q3 2024 were significant headwinds faced by exporters from the 12.5 per cent appreciation of the ringgit, which led to forex losses that dented quarterly earnings, as well as the special dividends announced by some companies, likely as a tactical move ahead of the two per cent dividend tax introduced in the 2025 Budget.
It added that the consumer, glove, and technology sectors were the main disappointments. All rubber glove companies under its coverage, namely Hartalega Holdings Bhd, Top Glove Corporation Bhd, and Kossan Rubber Industries Bhd, reported results that were below expectations, primarily due to higher input costs and forex losses stemming from unhedged receivables and forward contracts.
The technology sector, which was the weakest performer during the Q2 2024 earnings season, continued to underperform, with 67 per cent of companies reporting weaker-than-expected earnings.
The slower-than-expected demand recovery from the electronics manufacturing services, communications, and automotive sectors, combined with the stronger ringgit, was the key reason for the underperformance.
The plantation sector bucked the trend, delivering better results owing to rising crude palm oil prices driven by supply shortfalls.
Out of the 10 consumer companies that have reported Q3 2024 results, 70 per cent fell below expectations, said CIMB Securities.
"The weaker earnings are attributed to lower-than-expected sales due to weak consumer sentiment and boycott activities, as well as margin compression in specific cases—such as AEON's property management business and higher start-up costs for F&N's integrated dairy farming operations," it added.
Other major sectors such as banks, construction, and utilities will be reporting their earnings this week, marking the final week of the corporate earnings season.