Decent 3Q25, but a challenging 2026 awaits

THE just-ended third quarter of financial year 2025 (3Q25) reporting season must be one of the better quarters in recent times, with more hits than misses, largely due to the corrective and adjusted earnings expectations that has already been built into the current year’s forecast.

Nevertheless, global markets have seen some pullback recently amid concerns that tech valuations may be stretched and whether there is too much hype on artificial intelligence-driven spending.

With markets reaching dizzying heights, investors also took the opportunity to lock in gains for the year and reposition for 2026 themes, which are rather complex, uncertain, and full of “what if” scenarios.

For the local bourse, the market was very much range-bound as the FBM KLCI rallied to a high of 1,658 points or pts on Oct 3 but has since given up much of its gains.

Some disappointing quarterly performance also impacted the index, especially from companies like Petronas Chemical Bhd (PetChem) and CelcomDigi Bhd.

Another key point was persistent foreign selling, which in the last three months (between September and November 2025) reached RM3.78bil, but much lower than the preceding quarter’s exodus of RM5.67bil.

Nevertheless, net foreign outflows up to end-November remain high at RM20.3bil, the highest since 2020 when RM24.6bil left the country.

A better quarter

After recording a year-on-year (y-o-y) earnings contraction of 3.6% in the preceding quarter, and a 1.6% drop in the 1Q25, the 3Q25 earnings season saw a reversal of fortunes as core earnings jumped 2.4% y-o-y.

On a quarter-to-quarter (q-o-q) basis, earnings growth accelerated to 2.4% after expanding by 1.1% in the preceding quarter.

Following two seasons of lowered forecasts, the number of companies reporting earnings misses fell to 24.9% (2Q: 26.2%), while those that surprised on the upside jumped to 21.3% from 14.5% in 2Q25.

The increase in the number of companies beating estimates, coupled with fewer misses, suggest an improvement in the disappointing (beat-to-miss) ratio, which fell to 1.17 times in the 3Q25 from 1.8 times in the preceding quarter.

KLCI at 1,655 pts

The better performance in terms of hits and misses in the 3Q25 results season saw some brokers raising their FBM KLCI targets, with consensus now looking at 1,655 pts as the new fair value, against 1,644 pts at the end of the preceding quarter.

This was despite a lower average price-to-earnings multiple of 15 times for the quarter, down from 15.2 times in the preceding quarter.

Earnings growth for 2025 has been marginally lowered to just 1.8% from 2% previously, while momentum for 2026 was lowered to 7.2% y-o-y from the 7.6% that was forecasted at the end of the 2Q25 reporting season.

More surprises

Among index-linked constituents, the consumer sector delivered a strong performance, reinforcing confidence in Malaysia’s domestic demand.

Nestle (M) Bhd and 99 Speed Mart Retail Holdings Bhd saw strong top line and earnings growth, with both recording y-o-y revenue gains of 21.9% and 19.1%, and net earnings leap-frogged 33.5% and almost 50%, respectively.

Farm Fresh Bhd also had an excellent quarter as earnings rose 40% y-o-y, backed by an 18.4% gain in its top line.

The banking sector enjoyed a stellar quarter with names like AMMB Holdings Bhd, RHB Bank Bhd, and Alliance Bank Malaysia Bhd reporting net earnings growth of 7% to 8.8% y-o-y.

Among insurers, Allianz Malaysia Bhd and Syarikat Takaful Malaysia Bhd saw net earnings jump 27.8% and 14.7% y-o-y, respectively.

Among construction names, Sunway Construction Group Bhd was again a star performer, as its top line and bottomline rose 67% and 80.3% y-o-y, respectively, alongside a bumper dividend of 29.25 sen for the quarter.

Property sector too performed well, with strong earnings growth delivered by companies like UOA Development Bhd as its top line grew by nearly 54%, while earnings more than doubled.

It was mixed fortunes for commodity-linked companies as Petroliam Nasional Bhd-related companies reported poor results, but plantation sectors continued to shine.

Companies such as SD Guthrie Bhd, Genting Plantations Bhd, IOI Corp Bhd, and United Plantations Bhd benefited from rising crude palm oil prices, driving strong earnings momentum.

Among telecommunication companies, Maxis Bhd delivered a strong performance as earnings grew 12.6% y-o-y.

Telekom Malaysia Bhd’s results were mostly boosted by one-off gains and deferred tax adjustments, but Axiata Group Bhd was hit by impairments yet again.

Businesses tied to gold prices, like pawnbrokers and goldsmith chains, were also star performers this quarter, thanks to the golden era of the yellow metal.

Tomei Consolidated Bhd saw earnings tripled to RM22.5mil y-o-y, while Well Chip Group Bhd’s earnings swelled nearly 2.7 times to RM23.7mil.

Other notable results were relatively mixed. YTL Corp Bhd and YTL Power International Bhd recorded modest y-o-y earnings growth but saw steep 36.7% and 25.3% q-o-q declines, respectively, in their profits.

Nevertheless, YTL’s 67%-owned Malayan Cement Bhd had a strong quarter as earnings rose 43.8% y-o-y and 21.2% q-o-q, further cementing its strong market position.

External factors

While not going into details just yet, a multitude of factors will determine global market direction next year.

Externally, the key question will be how dovish the US Federal Reserve will be after the current chair leaves, how high will the US federal government debt and deficits rise, and what is the global inflation outlook, given that most major central banks have already cut rates drastically.

The impact of President Donald Trump’s tariffs could hit global economies more forcefully, while the outcome of the US midterm elections may influence policies and set the tone for Trump’s second half-term.

Locally, Malaysia will likely see slower growth in 2026 due to external pressures from tariffs, but the saving grace is that the central bank still has the right policy tools to address faltering growth amid a benign inflation outlook.

Malaysia going for an early 16th general election cannot be ruled out.

In conclusion, the 3Q25 earnings season was decent but rather damaging for companies that did not meet expectations, especially for companies like PetChem and CelcomDigi.

For now, the market’s near-term direction will likely focus on window-dressing, with sentiment largely driven by external factors, especially the upcoming US rate decision.

Moving beyond the near-term horizon, the market’s outlook for 2026 will likely be driven more by external factors than local ones, which will be discussed further in the final two columns for the year.