Earnings on Bursa to contract in 2022 but grow in 2023


CORPORATE earnings are expected to contract again this year after a rebound last year, according to Maybank Investment Bank Bhd (Maybank IB).

Maybank IB head of regional equity research Anand Pathmakanthan said the contraction in earnings will be mainly due to the one-off Cukai Makmur announced under Budget 2022 which will significantly impact corporate earnings this year.

“We are keeping an ‘Overweight’ recommendation on sectors such as technology, hospitals, mid-cap banks, large-cap oil and gas, renewables and automotive.

“We also foresee much improvement in corporate earnings in 2023, as companies come off from the effect of Cukai Makmur, and ride on the economic recovery which is expected to continue with better predictability moving forward,” he said during the Maybank IB Asean Macro and Malaysia Market Outlook 2022 webinar on Tuesday.

Maybank IB has set its end-2022 FTSE Bursa Malaysia KLCI (FBM KLCI) target at 1,710 points, premised on expectations of mid-teens earnings growth in 2023 after an estimated 7.4% contraction in 2022.

Anand said there will likely be a shift from growth to value stocks across Asean markets, including Malaysia in the second half of 2022, as the world returns to normalcy.

“If there’s a switchback to value, Malaysia’s FBM KLCI should do pretty well as its components are stable and cyclical stocks with decent dividend yields,” he said.

For Asean, the key driver is the fact that the six countries have already achieved Covid-19 vaccination for over 70% of their respective population, thus providing clarity and confidence for the economy to recover in the region.

Anand said Asean equities are very cheap but need a clear platform to normalcy.

“That’s what is going to bring capital back into these markets, away from the US or China.

“Dividend yields across Asean are extremely attractive. If you look at just yields as a thematic, Asean does stand out as a viable alternative asset class,” he noted.

He added the theme of dividend yield is also seen in Malaysia, with the FBM KLCI still dominated by old economy sectors such as banking, telecommunications, utilities and plantation.

By 2022, Asean will be more resilient with higher foreign reserves, stronger current accounts and less dependent on foreign capital.

“Manufacturing supply chain shifts will also resume, as the pandemic interrupted but did not derail the shift in manufacturing supply chains to Asean. Foreign direct investment has been remarkably resilient too,” Maybank IB regional co-head of macro research Dr Chua Hak Bin said at the same event.

Going forward, Chua said the Asean governments will shift their focus from stimulus to reducing their fiscal deficit and debts, although new taxes and a rapid withdrawal from fiscal support remain as risks.

He expects to see Asean experience a digital take-off this year, in which Asean start-ups are expected to raise more than US$20 billion (RM84 billion) in 2021, doubling from 2020.