Broker: Maybank Investment Bank Berhad
Date of Report: June 8, 2025

Malaysia Market Outlook 2H25: Earnings Downgrades, Sector Rotations, and Top Stock Picks for Investors

1Q25 Recap: Weak Earnings Drag Down 2025 Outlook

The first quarter of 2025 delivered disappointing results for Malaysia’s equity market. More companies missed than beat expectations, and crucial large-cap sectors like banking and plantations saw earnings downgrades. In response, Maybank Investment Bank trimmed its year-end KLCI target to 1,660 (down from 1,700), reflecting a more cautious stance amid ongoing tariff and macroeconomic uncertainties.

Key Highlights:

• 28% of covered companies reported earnings below expectations, only 15% beat, and 55% were in line.
• 1Q25 universe earnings contracted 2.4% year-on-year (YoY) and 0.8% quarter-on-quarter (QoQ)—the weakest since 1Q23.
• Banks and plantations led earnings downgrades; O&G also revised lower. Consumer and REIT sectors saw upgrades.
• 2025/26 KLCI earnings growth forecasts lowered to 2.5%/7.7% (from 6.1%/7.0%).
• Top large-cap picks: Public Bank, AMMB Holdings, YTL Power, Tenaga Nasional, Gamuda.
• Top small-mid cap picks: KPJ Healthcare, Frontken, ITMAX, Aurelius Tech, AEON Co., Solarvest, Sunway REIT.

Market Performance and Sector Analysis

Overall Earnings Trends

– Core profit for the research universe fell 2.4% YoY and 0.8% QoQ. – Sectors with both YoY and QoQ earnings contraction included utilities, telcos, healthcare (hospitals), non-bank financials, auto, and media. – Sectors with YoY and QoQ growth: Transport, consumer, REITs, and construction. – Only the petrochemicals sector reported negative earnings YoY and QoQ.

Sector Earnings Snapshots (1Q25):

Sector-by-Sector Outlook and Stock Analysis

Automotive (NEUTRAL)

– 1Q25 saw MBM and Tan Chong Motor in line, while Sime Darby missed due to weaker industrial and motors earnings. – Sector impacted by seasonally weak total industry volume (TIV) of 188,122 units (24% of annual target). – 2Q expected to remain subdued due to Perodua’s planned shutdown. – Recovery anticipated in 2H25 from new launches and promotions. – Dividend yield stocks: Bermaz Auto, MBM Resources.

Aviation (POSITIVE)

– AAX missed expectations on higher maintenance costs; CAPITALA beat on higher ancillary income per passenger. – Non-aviation business for CAPITALA in line. – Earnings outlook buoyed by weaker USD and jet fuel prices. – Top pick: CAPITALA.

Banks (NEUTRAL)

– Sector disappointed, with several banks below expectations. – Loan growth slowed to 4.4% YoY, NIMs slipped by 2bps QoQ. – Earnings trimmed by 5%/4% for 2025/2026; now forecast net profit growth of 1.1%/5.0%. – Preferred picks: Public Bank (PBK), AMMB (AMM), Hong Leong Bank (HLBK), HLFG.

Construction (POSITIVE)

– Mixed results: Gamuda, Cahya Mata Sarawak, Prolintas underperformed; Sunway Construction and IJM outperformed. – Data centre construction theme remains robust. – Key wins: Gamuda (MYR1.0b enabling works for data centres), Sunway Construction (MYR1.2b e-commerce contract). – Top pick: Gamuda (GAM).

Consumer (POSITIVE)

– Strong festive spending supported sector. – MRDIY and Padini saw gross profit improvements. – AEON’s earnings seasonally stronger; Nestle recovering from FY2024 boycotts. – Top picks: AEON, MRDIY, Padini.

Gaming (NEUTRAL)

– Genting Bhd and Genting Malaysia underperformed due to higher interest expense. – QoQ EBIT recovery for both. – GENM expected to benefit from mass gaming reopenings and RWLV improvement. – GENM’s bid for NYC casino license could add significant value.

Gloves (NEGATIVE)

– Hartalega missed expectations on lower sales and higher costs; Kossan in line. – US tariff uncertainty and looming Chinese supply threaten margins and volume. – Maintain SELL calls on Hartalega, Kossan, Top Glove.

Healthcare (POSITIVE)

– IHH and KPJ in line, but all experienced seasonal revenue/EBITDA declines. – Growth expected in 2H25 from pent-up demand and ramp-up of new hospitals. – Top pick: KPJ.

Media (NEUTRAL)

– Both ASTRO and Media Prima underperformed due to higher taxes and weak adex. – Sector to remain challenged by tariff hikes and subsidy rationalizations.

Oil & Gas (NEUTRAL)

– Velesto exceeded expectations; Bumi Armada missed due to penalties. – Lower oil majors’ capex and OPEC policies may dampen job flows. – Top picks unchanged: Dialog, Bumi Armada.

Petrochemicals (NEGATIVE)

– Sector core net profit dropped 122% YoY. – Petronas Chemicals missed expectations due to weak spreads and operational disruptions. – Lotte Chemical Titan in line. – 2Q25 expected to be weak due to declining spreads and refinery shutdowns.

Plantation (NEUTRAL)

– Mixed results: SD Guthrie, Genting Plantations, Sarawak Oil Palms outperformed; IOI and KLK missed. – Upstream contributed strongly due to high CPO prices; downstream margins weak. – Top picks: SD Guthrie (large cap), Sarawak Oil Palms (small cap).

Ports & Shipping (NEUTRAL)

– Westports and Swift met expectations. – Gateway container demand soft but offset by transhipment. – Tariff hikes and regulatory changes could provide temporary support.

Property (NEUTRAL)

– Results broadly in line; seasonally weaker due to holidays. – More launches planned for 2H25. – Key drivers: JSSEZ, asset monetization, industrial properties. – Top picks: Eco World International (ECWI), Sime Darby Property (SPSB), Eco World (ECW).

REITs (POSITIVE)

– Retail REITs resilient; positive rental reversions, improved tenant sales. – Hospitality and industrial segments strong; office space recovery muted. – Top picks: Sunway REIT (SREIT), CapitaLand Malaysia Trust (CLMT).

Renewable Energy (POSITIVE)

– Solarvest outperformed on strong margins and orderbook. – MYR1.24bn orderbook gives earnings visibility to FY28. – Top pick: Solarvest.

Technology – EMS (POSITIVE)

– Mixed results; two companies in line, one outperformed. – Near-term outlook clouded by supply chain and macro uncertainty. – Top pick: Aurelius Tech (ATECH).

Technology – Semiconductor (NEUTRAL)

– Largely in line with Maybank forecasts, but sector faces headwinds from margin pressures and capex deferrals. – Top pick: Frontken (FRCB).

Technology – Software (POSITIVE)

– MYEG and Ramssol beat expectations; ITMAX in line, CTOS missed. – Strong digital adoption trends. – Top pick: ITMAX.

Telcos (NEUTRAL)

– Mixed results; only Tenaga posted YoY earnings growth due to RP4 terms. – YTL Power, Malakoff, and Mega First missed.

Utilities (NEUTRAL)

– Mixed results; only Tenaga delivered YoY growth. – Petronas Gas managed fire-related costs. – Top picks: Tenaga Nasional (TNB), YTL Power (YTLP).

Market Valuations, Targets, and Scenarios

– KLCI trades at ~13x 2026E PER. – 2025/26E KLCI earnings growth now forecast at 2.5%/7.7%. – Bull case: KLCI 1,730 (15x PER), base case: 1,660 (14.4x PER), bear case: 1,450 (13x PER), trough: 1,300 (12x PER, 0% earnings growth).

Top BUY Picks and Target Prices

Dividend and Defensive Strategies

– Maybank recommends overweighting defensive and high-yield dividend stocks, especially in REITs, banks, and utilities. – Notable dividend yields for 2025E: Public Bank (5.2%), AMMB Holdings (5.6%), Sunway REIT (4.6%).

Key Takeaways for Investors

• Remain cautious on banks and O&G due to headwinds and downgrade to NEUTRAL.
• Focus on domestic-driven, resilient sectors: consumer, construction, healthcare, REITs, renewable energy.
• Dividend and defensive plays are preferred amid market volatility and tariff uncertainty.
• Top stock picks remain largely unchanged, with additions like Tenaga and Sunway REIT for sector diversification and yield.

Valuation Multiples (2025E):

Conclusion: Strategy for 2H25

While the market’s first quarter was underwhelming, there are signs of recovery in the second half of 2025, especially in property, REITs, renewable energy, and healthcare. Investors are advised to position portfolios for defensive and dividend resilience, while selectively targeting growth in high-conviction sectors and companies.
Continue to monitor sector rotations, macro headwinds, and tariff negotiations, as these will shape earnings and market direction into 2026 and beyond.