KUALA LUMPUR (Dec 2): More sectors recorded results that are below expectations for the quarter ended Sept 30, 2022 (3QCY2022) versus the previous corresponding quarter, following various cost pressures and challenging external environments, said analysts.

“With the operating environment likely to turn more challenging, investor caution is warranted although news flow on US monetary conditions, events in China, and easing domestic political risk offer scope for less pessimism,” said RHB Research in a note.

RHB Research in a note said four sectors, namely banks, oil and gas (O&G), auto, and property, have exceeded expectations versus five sectors in 2QCY2022). Seven sectors (plantation, media, construction, gaming, healthcare, rubber gloves and basic materials) missed expectations compared to five in 2QCY2022.

It added that the utilities, telecoms and consumer sectors performed in line. Labour shortages remained palpable for industries that are dependent on unskilled and semi-skilled migrant workers and “will likely persist” through the first half of 2023.

“The misses-to-beats ratio remained steady at 0.8 and below 1 for consecutive quarters for the first time in our tracking history, after 34.8% of the results beat, offset by 26.5% misses,” it said, adding that earnings estimate for companies under coverage were lifted by 1.3% for FY2022 while FY2023 forecast earnings were trimmed 0.2%.

RHB Research said the KLCI component stocks reported six beats and nine misses, marginally worse than the preceding quarter. “Earnings estimates for FY2022 were raised by 0.5% while FY2023 saw a 1.1% cut. FY2023 forecasts were raised for the plantations, O&G and telecom sectors but offset by cuts in the banking, rubber gloves and auto sectors,” it added.

The research unit said investors are beginning to price in expectations that the pace of monetary tightening is close to peaking.

“We are also of the view that China’s zero-Covid stance is increasingly unsustainable. A more pragmatic approach by China’s government to contain Covid-19 will give a major fillip to investor sentiment,” it added.

RHB said on the domestic front, investors continue to await the formation of the new Cabinet and the re-tabling of Budget 2023. “The new Unity Government needs to prove its ability to work together. We think subsidy and fiscal reforms will be the acid test,” it added.

That said, it advised investors to approach 2023 with caution but start to actively look for opportunities to build positions for the medium term and buy on weakness and “re-focus” on fundamentals with a preference for large cap value stocks.

Meanwhile, MIDF Research said 18% of the companies under its coverage registered earnings above its expectations, which is lower compared to 30% in the prior quarter. Meanwhile, the percentage of negative surprises increased slightly to 34% in 3QCY2022 from 32% in the prior quarter.

“Accordingly, the percentage of companies with results which met expectations jumped to 48% in 3QCY2022 from 38% in the prior quarter,” it added.

MIDF said the consumer P&S sector recorded the highest percentage of positive surprises at 41% of stocks under its coverage while the healthcare sector continued to register the biggest percentage of underperformers at 86% of companies under its coverage.

Generally, the research house said consumer P&S, financial services, industrial P&S, property, REITs, and transport and logistics were the sectors which recorded improved total earnings in 3QCY2022 when compared to both the preceding quarter and corresponding period last year.

“On the other hand, construction, healthcare, plantation, and telecommunications and media were the sectors which registered both negative sequential and on-year earnings (as reported) growth percentages in 3QCY2022,” it added.

Meanwhile, it said during the quarter under review, the aggregate reported quarterly earnings of the 30 FBM KLCI constituents improved vis-à-vis the preceding quarter as well as against corresponding quarter last year to RM15.8 billion. It registered positive sequential growth at 2.5% quarter-on-quarter and at 7% year-on year.

The research house said it has cut the aggregate earnings estimates of FBM KLCI constituents by 0.9% to 64.8 billion for FY2022 and by 1.8% to RM67.2 billion for FY2023, mainly due to the recent lumpy cuts to forward earnings of Malayan Banking Bhd (Maybank) and Petronas Chemicals Group Bhd. MIDF maintained its FBM KLCI end-2022 target at 1,550 points.