Muted 1Q26, weaker growth ahead
THE recently concluded first-quarter (1Q26) reporting season for 2026 was undeniably weak, led by a surprisingly poor set of results from the banking sector as well as the consumer sector, except for a few that managed to either meet or beat market forecasts.
In a surprise turn of events, what have been market darlings and villains in terms of earnings performance over the past few quarters exchanged positions as companies like PETRONAS Chemicals Group Bhd returned to profitability while banking stocks like Malayan Banking Bhd and CIMB Group Holdings Bhd reported negative earnings growth year-on-year (y-o-y) of 4.1% and 2.9%, respectively.
Bucking the trend, RHB Bank Bhd recorded a strong performance with a solid 14.2% y-o-y growth in net earnings.
Among FBM KLCI stocks, outstanding earnings growth was seen in the telecommunications sector, where all three giants – Axiata Group Bhd, Maxis Bhd, and CelcomDigi Bhd – reported strong earnings growth.
In the utility sector, Tenaga Nasional Bhd saw a decent growth in earnings of 5.5% y-o-y, but YTL Power International Bhd posted a significant 42% drop in profits, namely driven by lower margins.
Other notable surprises among FBM KLCI-linked companies were the lower earnings by newly listed Sunway Healthcare Holdings Bhd, due to one-off listing expenses as well as higher operating expenses.
However, Press Metal Aluminium Holdings Bhd continues to ride the rise in commodity prices, as its earnings jumped 35.2% y-o-y on the back of higher aluminium prices.
Among plantation companies, Kuala Lumpur Kepong Bhd reported a weaker core profit, dragged by lower plantation earnings, while SD Guthrie Bhd’s earnings were impacted by lower profits from its upstream division.
However, IOI Corp Bhd’s earnings were firmer by about 10% due to higher output and better oil extraction rate.
Outside the index-linked stocks, earnings surprises were not aplenty, but some were clear standouts, including strong growth reported by Westports Holdings Bhd, which saw profit after tax rising by 46.8% y-o-y, as well as from Malayan Cement Bhd, where earnings surged 34.9% y-o-y.
Elsewhere, soon-to-be-added to the FBM KLCI, IOI Properties Group Bhd, showed a remarkable performance as its net profit tripled.
Meanwhile, AirAsia X Bhd reported a sharp reversal of fortunes, mainly driven by lower ancillary income, while property stocks, namely S P Setia Bhd, UEM Sunrise Bhd, and Sime Darby Property Bhd saw a weaker 1Q26 as well, with all reporting more than 20% lower net profits compared with a year ago.
Among construction stocks, IJM Corp Bhd was a disappointment with a reported quarterly loss, mainly due to impairments of its unsold inventories and foreign exchange losses.
However, it did not suffer a selloff in the market as it is planning a massive capital management plan to return up to RM3bil to shareholders over the next three years.
Meanwhile, Sunway Construction Group Bhd continued its strong earnings growth momentum with 1Q26 net profit rising 56% y-o-y.
Consumer names too disappointed as weaker earnings were reported by Oriental Kopi Holdings Bhd, Padini Holdings Bhd, Fraser & Neave Holdings Bhd, and Heineken Malaysia Bhd.
However, 99 Speed Mart Retail Holdings Bhd, Nestle (M) Bhd, and MR DIY Group (M) Bhd remain as strong performers, with earnings growth of 13%, 27.1%, and 30.1% y-o-y, respectively.
Among glove makers, while Supermax Corp Bhd reported its 14th consecutive quarterly losses, both Kossan Rubber Industries Bhd and Hartalega Holdings Bhd recorded continuous improvement in profits.
The automotive sector saw a strong showing as both Bermaz Auto Bhd and Sime Darby Bhd reported strong net profit growth of 29.3% and 55.6% y-o-y, respectively.
Decent growth
Although corporate earnings showed a decent growth of 3.6% y-o-y for 1Q26, the pace of increase was slower than the preceding quarter’s 7.5% y-o-y growth.
On a quarter-to-quarter (q-o-q) basis, after expanding by 4.2% in the preceding quarter, earnings momentum reversed gear and reported a contraction of 3.5% q-o-q.
There were also more misses than hits as companies reporting earnings surprises improved to just 12.2% (4Q25: 22.2%), while companies that disappointed the market jumped to 26.2% from 24.1% in the preceding quarter’s reporting season.
The increase in the number of companies missing consensus and the lower number of companies that surprised the market translates to a higher disappointing ratio, which jumped to 2.14 times in 1Q26 from just 1.09 times in 4Q25.
FBM KLCI to hit 1,766
Most brokers lowered their FBM KLCI target, with consensus now looking at 1,766 points as the new fair value, against 1,775 points in the preceding quarter, based on earnings growth of approximately 7.9% for 2026 and a market price earnings multiple of 15.3 times.
For 2027, earnings growth has been lowered marginally from the previous estimate of 7.5% to 6%.
External uncertainties
The closure of the Strait of Hormuz and the prolonged war in Iran have taken a toll on the global economic outlook.
Countries have even utilised their strategic petroleum reserve to offset supply uncertainties as well as elevated global oil prices and will be hard-pressed to meet consumer demand if the sea passageway remains blocked.
The supply chain disruption will also take a toll on other commodities and goods that are imported from the region.
The Organisation for Economic Cooperation and Development (OECD) recently lowered its 2026 global economic growth outlook to just 2.8% from the 3.6% that was achieved in 2025, while growth for 2027 is now projected at 3.1%.
The OECD further warned that under a “prolonged disruption”, which assumes that the current disruptions to energy production and exports in the Gulf economies persist well into 2027, global growth may even slow to just 2.1% in 2026 and 1.8% in 2027.
Domestic disruption
With Johor and Negri Sembilan now in the 60-day window where state elections must be held following the dissolution of the respective assemblies, efforts to sustain economic momentum will be disrupted as key party leaders will be on the campaign trail.
The elevated global oil price has also become a hot potato for the federal government to manage, as it has vowed to keep the current subsidy price, while ensuring that it maintains its fiscal prudence and does not raise the federal government’s debt level.
A tough balancing act, but surely the fuel subsidy rationalisation needs a wiser approach to ensure we are not overly burdened by the expanding subsidy bill.
Given the external and domestic headwinds, the upcoming 2Q26 reporting season will remain a subdued quarter, and with the supply disruption and elevated global oil prices, a slower economic growth is likely to follow suit.