Muted outlook for exports in 2H

PETALING JAYA: A weak showing by the local semiconductor sector in the just-concluded second-quarter (2Q) results season may portend a correction in technology stock valuations.

Valuations in this sector are sitting on a high base at present due to its historically high growth outlook, but these appear to have not yet fully price in a worsened outlook due to potential effects of the US tariffs and trade policy.

Company earnings for the local technology sector were among the main laggards on Bursa Malaysia in the recently concluded 2Q reporting season.

It is also understood that some companies in this sector have held back capital expenditure plans for the time being until more clarity is seen from the effects of the ongoing change in US trade policy and tariffs.

Former senior investment banker and seasoned investor Ian Yoong said the semiconductor-related sector was a major disappointment in 2Q this year.

“This is attributed to front-loading by US companies in anticipation of the Liberation Day announcement of tariffs on April 2 earlier this year,” he told StarBiz.

The biggest company in this space, Inari Amertron Bhd, said in its recent financial results report that it took a hit from lower volume loading across all of its businesses.

The company reported that its latest 4Q ended June 30 net profit had declined by some 10% year-on-year (y-o-y) to RM49.17mil compared to the same quarter a year ago.

In its report published at end-July, AmInvest Research said investors were pricing in a best-case scenario for ViTrox Corp Bhd, given that the stock has seen a strong rerating driven by a flight to quality.

This, it said, elevated the risk of disappointment should its current growth trajectory falter: AmInvest Research has downgraded ViTrox to a “sell” rating following the company’s 2Q earnings report.

ViTrox had traded at near the RM3.90 handle for a month at historical valuations of some 76 times price earnings ratio.

Apart from the export-oriented semiconductor sector, weakness was also evident in another overseas trade-reliant industry – the rubber glove and furniture manufacturing sector.

Commenting on this, CIMB Research pointed out based on its compiled data that both the rubber glove and technology sectors were the key laggards on Bursa Malaysia this time around.

“The rubber glove and technology sectors recorded a high proportion of earnings disappointments, with 75% and 67% of companies underperforming in the respective sectors.

“In the glove sector, Hartalega Holdings Bhd, Top Glove Corp Bhd and Supermax Corp Bhd had all missed expectations, owing to weaker sales volumes, steeper average selling price (ASP) declines, higher depreciation charges and foreign-exchange (forex) pressures,” it said.

“In the technology space, SKP Resources Bhd, VS Industry Bhd, Unisem (M) Bhd and CTOS Digital Bhd reported weaker results – weighed down by softer demand, cost pressures, forex headwinds and margin compression from an unfavourable sales mix,” CIMB Research added.

The export sector may continue to see a bleak outlook in the second half of the year amid these uncertainties, said Yoong.

“The outlook for sectors impacted by US tariffs is less bright.

“My biggest worry is that for countries impacted by these tariffs – especially those countries that have been imposed high import tariffs such as India at 50% – their most viable strategy would be to channel their products to all countries with the exception of the United States and sell at discounts to generate sales,” he said.

“A pencil manufacturer in India that has been exporting pencils to the United States to be sold at US$1 per pencil will have to be sold at US$1.50 because of the 50% tariff.

“The high pricing will make the pencil uncompetitive. The smart move is to sell the pencil in Malaysia at an attractive discounted price of US$0.80.

“The Malaysian pencil manufacturer will be forced to reduce its selling price to maintain sales,” he added.

Yoong noted the impact of US import tariffs will have ramifications on the whole global trading scene, as these tariffs are wide and far-reaching.

“The global trade equilibrium is being destabilised. The outlook for the remainder of this year is, therefore, bleak,” Yoong said.

But pockets of strength can still be seen in some segments of the domestic economy such as the construction sector, although the consumer sector still appears to show some weakness.

“The artificial intelligence or AI boom through the construction of data centres is expected to benefit large-cap construction companies on Bursa Malaysia in the medium term.

“Earnings from constructing data centres are recognised over 12 to 24 months versus properties at 24 to 36 months. We expect earnings of large-cap construction companies to ramp up from 3Q26 when construction of data centres accelerate,” Yoong said.

Moving forward, TA Research said the 3Q outlook for the construction sector appears relatively flat, with revenue recognition progressing steadily from existing order books.

“However, we anticipate a slowdown in earnings growth due to delayed project launches and sluggish new job replenishment in the first half or 1H25.

“Overall, in the absence of a major catalyst – such as the rollout of large-scale infrastructure projects – we believe current valuations have largely priced in the sector’s prospects,” TA Research said.

On another note, CIMB Research said the consumer sector recorded the highest number of companies missing expectations in its coverage – among discretionary names such as Amway (M) Holdings Bhd, MyNews Holdings Bhd and Bonia Corp Bhd.

These have reported weaker sales and higher costs, partly due to festive spending being pulled forward into 1Q, consumer downtrading and rising operating expenses due to the minimum wage hike, the research house said.

“Fraser & Neave Holdings Bhd also underperformed owing to continued losses at its integrated dairy farm, while QL Resources Bhd was weighed down by weaker contributions from its marine products and convenience store businesses,” CIMB Research added.

Among FBM KLCI constituents, CIMB Research said the plantation sector stood out, with SD Guthrie Bhd and KL Kepong Bhd posting better-than-expected earnings on the back of stronger palm product prices.

“Other FBM KLCI names that outperformed included AMMB Holding Bhd on lower net credit costs, Maxis Bhd on lower operating costs, PETRONAS Dagangan Bhd on stronger commercial segment net margins, and Sunway Bhd from better construction profits,” it said.

Notably, the research house said 27% of companies under its coverage declared higher dividends in 2Q25 compared to the previous year’s quarter.