War worries likely to trump earnings

GIVEN the momentum from the previous three quarters, the recently concluded fourth-quarter (4Q) reporting season was much better-than-expected, minus exceptional gains or impairments reported by some companies.

Nevertheless, despite the stronger quarterly results, market attention is now focused on the US-Israeli war against Iran.

Iran’s response to the attacks across the Middle East has raised geopolitical risks and fears of further escalation, as well as concerns over the duration of this unwanted and uncalled-for conflict.

The highlights of the reporting season mainly came from key index stocks.

Petronas Chemicals Group Bhd reported another quarterly loss of RM754mil, while Perlis Plantations Bhd surprised the market with an impairment to the tune of RM4.17bil on its investment in Wilmar International Ltd.

Among other index-linked counters, strong performances were seen from companies like Sime Darby Bhd, SD Guthrie Bhd, Kuala Lumpur Kepong Bhd, MR DIY Group (M) Bhd, Nestle (M) Bhd, Press Metal Bhd, Sunway Bhd, AMMB Holdings Bhd, and Tenaga Nasional Bhd.

Outside the index-linked stocks, earnings surprises came from the healthcare, glove, and plantation sectors.

Strong performances were recorded by KPJ Healthcare Bhd, three of the four main glove players – excluding Supermax Corp Bhd – as well as Johor Plantations Bhd, and United Plantations Bhd.

Positive surprises were also reported by Sunway Construction Bhd, Duopharma Biotech Bhd, 99 Speed Mart Retail Holdings Bhd, British American Tobacco Bhd, and Farm Fresh Bhd.

Quarterly results from Allianz Malaysia Bhd were also exceptionally strong, with full-year earnings reaching RM958.8mil and dividend payout rising to to RM1.525 per share.

Dividend increases were also announced by RHB Bank Bhd, which raised its payout to 50 sen per share, while Malayan Banking Bhd lifted its dividend to 63 sen.

Carlsberg Brewery Malaysia Bhd also had a strong quarter and increased its dividend payout by 11% for the year.

Better quarter

After recording a year-on-year (y-o-y) earnings growth of 2.4% in the preceding quarter, the 4Q reporting season saw a reversal of fortunes as core earnings jumped 7.5% y-o-y.

On a quarter-on-quarter basis, earnings growth also accelerated to record 4.2% after expanding by 2.4% in the preceding quarter.

As expected, the proportion of companies reporting earnings surprises improved to 22.2% (3Q: 21.3%), while the share of companies that disappointed the market declined to 23.1% from 24.9% in the 3Q reporting season.

The rise in earnings beats alongside fewer misses suggests a modest improvement in the disappointment ratio, which eased to 1.04 times in 4Q from 1.17 times in the preceding quarter.

As 2026 is still in its early stages, most brokers have kept their FBM KLCI targets unchanged.

Consensus now places fair value at 1,752 points, unchanged from the preceding quarter, while earnings growth for the year has been marginally lowered to 6.8% from 7.5% previously, based on a price-to-earnings multiple of 15 times.

The exceptionals

While impairments were common among some companies, so were write-backs and gains from asset disposals for others.

The most striking result and biggest reported profit during the quarter came from Capital A Bhd, which reported a quarterly profit of RM10.2bil – an astonishing figure nearly five times larger than its current market capitalisation – after recognising a RM9.74bil gain from the disposal of its airline business.

Meanwhile, Lotte Chemical Titan Holdings Bhd reported another dismal year, with its net loss widening to RM2.14bil, mainly due to RM1.4bil in impairments.

In contrast, IOI Properties Group Bhd booked a RM1.07bil gain from the fair value revaluation of investment properties and the remeasurement of its previously held interest in a joint venture.

Elsewhere, Genting Bhd was hit by impairment losses on receivables, while MBSB Bhd reported a subdued quarter after recognising expected credit losses on its loan book.

Tariffs and turmoil

Midway through the recent earnings season, global markets briefly rejoiced after the US Supreme Court’s ruling that tariffs imposed by Donald Trump on the rest of the world were illegal.

However, Trump turned around and imposed a 10% tariff under a different legislation, which was subsequently raised to 15%.

Despite the court ruling, he has remained defiant on the issue and seems bent on breaking the law to have it his way.

Similarly, the war on Iran has also raised questions under international law, as Trump was never given the green light to strike Iran.

In addition, the narrative as to why the United States fired the first shot has been revised every time the same question was asked.

The latest explanation is that the United States acted pre-emptively because Iran was planning to strike Israel or US interests in the region, and that Tehran was only weeks away from developing a nuclear weapon.

Unbelievable, but true.

Despite the damage inflicted, Iran retaliated against Israel and other US interests in the region, triggering worries that we may be on the verge of a protracted war.

Markets have begun reacting to these developments, and just a week into the turmoil, the near-term investment outlook appears increasingly murky.

Asset prices are likely to turn more volatile as investors respond to the latest war-related developments.

Malaysia will not be immune to the fallout, as higher oil prices are generally a net negative for the economy, although higher gas prices could help mitigate some of the impact.

Global economic growth too may be hit in a prolonged war scenario, more so if other superpowers like Russia and China are drawn into the crisis.

Safety first

Let’s face it, nobody wants a war, and like tariffs, there are no winners here, as a war is a lose-lose game for everyone.

For investors in a risk-off environment, staying defensive with pure domestic-orientated themes will be the best choice, especially in a heightened geopolitical uncertainty.

In times of economic turmoil, safe-haven assets too are expected to outshine.

Gold has once again demonstrated its resilience, while the US dollar – despite enjoying a relief rally amid the ongoing Middle East tensions – remains on the path of a long-term structural downtrend.