Corporate earnings likely to soften in 1Q

PETALING JAYA: A slight slowdown in corporate financial growth is anticipated in the first quarter (1Q25), as companies turned cautious amid the change in leadership in the US government.

The global economy experienced heightened uncertainty during this period, with foreign net selling reaching a crescendo on Bursa Malaysia.

This trend reflected a guarded stance among investors, many of whom repatriated funds.

Rising protectionism, amid ongoing geopolitical tensions, is expected to have shaved a few percentage points off gross domestic product growth for 1Q.

Nevertheless, Malaysian exporters are seen to have benefited from front-loading activities by the United States, a key trading partner.

US companies reportedly stocked up inventories in anticipation of additional trade barriers following the installation of President Donald Trump’s administration.

Advanced estimates by the Statistics Department showed the Malaysian economy in 1Q was supported by the strength in retail and wholesale trade, a resilient labour market, and improved demand for key export products.

Notably, higher demand for electrical and electronic (E&E) products boosted exports to the country’s two major trading partners – Singapore and the United States.

Government trade data indicated a 6.8% increase in exports to RM137.31bil in March, a record high.

Shipments to the United States rose by 50.8% to a record RM22.7bil in March, the data showed.

As the 1Q25 earnings season ramps up, investors will start digesting the results from now until the end of May.

Former senior investment banker and seasoned investor Ian Yoong said his expectations for 1Q25 financial results for companies listed on Bursa Malaysia are “neutral to negative”.

“The tense trade environment would have affected end demand and this may have some spillover effects onto some listed companies,” Yoong told StarBiz.

Moving forward, E&E exporters are expected to continue feeling the brunt of US tariffs, although the extent remains uncertain at this point.

Yoong said the strong export figures recently reported could potentially be impacted by a stronger ringgit now, if the trend persists.

“Though it is also highly likely that the 24% tariff imposed on Malaysian exports to the United States will make our products more attractive than (those from) many other Asian countries, which face significantly higher tariffs of 40% to 50%,” he said.

“Countries that face high tariffs will have to increase their exports to countries other than the United States to compensate for the significantly lower sales.

“The exporters in these high-tariff countries will have to lower the prices of their products to increase sales,” Yoong added.

Key listed companies in the E&E export-driven industry include Inari Amertron Bhd, Genetec Technology Bhd and Notion VTec Bhd.

While the export outlook remains uncertain, resilient domestic demand is expected to take centre stage in the months ahead, helping to support economic growth.

The recent rise in minimum wages and salary increments for civil servants at the end of last year are expected to help support consumer demand.

Malacca Securities research head Loui Low expects stocks driven by domestic demand to do well in the 1Q25.

“Since the trade war started, all the focus has been on domestic-driven demand and items that the United States could not put tariffs on, such as software and services.

“So, we believe domestic and software-related stocks will show stable growth as we head into the reporting season,” Low told StarBiz.

“However, those affected by tariffs will try to put in more provisions, and this may impact negatively on their earnings,” he added.

Companies in the software and services sectors on Bursa Malaysia include CTOS Digital Bhd, ITMAX System Bhd and N2N Connect Bhd.

Additionally, there are expectations that the construction sector will continue to outperform.

Stocks in the construction sector have demonstrated resilient demand and have led active gains on the local bourse in recent days.

“The domestic demand theme will continue at least in the near to medium term, as long as inflationary pressures are manageable.

“Meanwhile, domestic-focused companies will rely on catalysts such as the National Energy Transition Roadmap, the New Industrial Master Plan 2030 and the Johor-Singapore Special Economic Zone to flourish,” Low said.

“We may still benefit from the ‘feel-good’ factor of being part of the Asean bloc, which has the third-largest population in the world.

“Hence, (sectors like) utilities, construction, consumer and select technology stocks, especially in the cybersecurity segment, may benefit,” Low added.

Yoong noted that the tourism theme may gain further prominence, which could help stimulate domestic demand in the future.

On a slowdown in exports, Low pointed out that any upsides in the dollar could be limited based on comments from influential value investor Warren Buffett.

Buffett had reportedly highlighted concerns about the long-standing US fiscal deficit during his recent shareholder address and mentioned that investors may look to diversify into currencies other than the US dollar.

“So, from a longer-term perspective, we may see a weaker US dollar and a stronger Asian currency.

“However, things are still fluid for now, as trade talks are on the table next week,” he concluded.