Malaysian companies' first-quarter performance disappoints

Malaysia's corporate sector has kicked off the year with a lackluster performance, as first-quarter earnings reports reveal a growing number of companies missing market expectations.

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This makes the better than expected ratio at 0.52, lower than 1.33 in the fourth quarter of 2025, but higher than 0.24 in the first quarter of last year.

Analysis from CIMB Securities indicates that out of 97 companies covered, only 12% surpassed forecasts, while 24% underperformed, and a significant 64% met predictions. This resulted in a "better than expected" ratio of 0.52, a dip from the previous quarter's 1.33 but an improvement from last year's first quarter. Despite the overall weaker showing, aggregate net profit managed a 3.7% year-on-year increase, buoyed by festive spending, lower financing costs, and early bookings. However, on a quarter-on-quarter basis, profits saw a 1.7% decline.

Sector performance was mixed. The construction, oil and gas, and automotive sectors displayed stronger momentum. Conversely, consumer, property, construction, and gaming sectors were among the weakest performers. CIMB adjusted its ratings, upgrading plantations, construction materials, oil and gas, and technology to "overweight," while downgrading utilities, property, and construction to "neutral."

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Although the overall performance was weaker, aggregate net profit still recorded year-on-year growth of 3.7 percent, supported by festive spending, lower financing costs, and early bookings. However, quarter-on-quarter, profits decreased by 1.7 percent.

Hong Leong Investment Bank reported that 61% of companies met expectations, 29% fell short, and 10% exceeded targets. Aggregate core profit decreased by 6% quarter-on-quarter but rose 1% year-on-year, with the banking sector being a major drag on overall performance. The firm maintained its FTSE KLCI target at 1,790 points, anticipating continued weakness in the second quarter of 2026 before a potential recovery later in the year as geopolitical tensions ease.

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Aggregate core profit decreased six percent quarter-on-quarter but increased one percent year-on-year, with the banking sector being the main contributor to the overall weak performance.

RHB Research echoed a cautious outlook, noting that only 12.1% of companies beat expectations, the lowest since 2018. The banking, plantation, and property sectors were identified as key contributors to the weak performance. RHB advised a defensive investment strategy and a "buy on weakness" approach, especially with the upcoming Johor state elections. The firm revised its end-2026 FBM KLCI target down to 1,750 points from 1,780, keeping the valuation multiple at 15.5 times. In a severe downside scenario, the index could reach support levels around 1,433 points. Despite the slow start to the year, all three research institutions expect earnings growth to remain positive.

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Only 12.1 percent of companies beat expectations, the lowest level since 2018.