Blue chips face slower earnings growth after disappointing Q1 results

KUALA LUMPUR: Bursa Malaysia's blue chips are projected to deliver lower earnings growth this year after a disappointing first quarter of 2025 (1Q25) across key sectors, according to CIMB Securities.
The firm has cut its full-year earnings growth forecast for these stocks to 3.4 per cent from 9.3 per cent, citing widespread 1Q25 results that fell short of expectations.
It said the 1Q25 earnings surprise ratio plunged to 0.24 times, the lowest in over a year, reflecting broad-based underperformance across sectors including oil and gas, consumer, technology and banking.
The earnings surprise ratio measures the number of companies that exceeded expectations relative to those that missed.
Only seven per cent of companies under CIMB Securities' coverage beat expectations in the quarter, while 29 per cent missed.
"We are negative on the 1Q25 earnings season as disappointments were widespread, and upside drivers remain limited in the near term," it said in a strategy note titled 'A disappointing start to 2025'.
The firm also lowered its end-2025 FTSE Bursa Malaysia KLCI target to 1,560 points from 1,657, based on an unchanged forward price-to-earnings multiple of 14.7 times.
Earnings downgrades were led by banks, Sime Darby Bhd and Petronas Chemicals Group Bhd. Weak sales, foreign exchange losses, margin compression and one-off dilution from Chinese associates were among the key contributors to the weaker results.
Among the 30 blue-chip stocks that make up the benchmark index, 17 per cent reported earnings below expectations, the firm said.
CIMB Securities also downgraded its sector calls on oil and gas and plantations to "Neutral" from "Overweight", citing a lack of near-term catalysts and subdued earnings visibility.
The firm said tariff uncertainty and domestic policy shifts are expected to further weigh on market sentiment in the coming quarter.
Risks highlighted include the potential end of the US 90-day tariff reprieve on July 9, possible adjustments to RON95 fuel subsidies and the sales and service tax, as well as higher electricity tariffs expected in the second half of the year.
Despite the weak earnings momentum, the firm identified pockets of opportunity in defensive names and stocks with clear catalysts.
Its revised large-cap top picks include CelcomDigi Bhd, Gamuda Bhd, Public Bank Bhd, RHB Bank Bhd, Tenaga Nasional Bhd, Maxis Bhd, IOI Corporation Bhd, IJM Corporation Bhd and 99 Speed Mart Retail Holdings Bhd.
For the small- to mid-cap segment, the firm's top picks are Axis REIT, Farm Fresh Bhd, Mah Sing Group Bhd, Malaysian Resources Corporation Bhd and KJTS Group Bhd.

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