CGS International
Date of Report: September 3, 2025
Malaysia Market Outlook 2025: Why Investors Should Look Beyond Weak Earnings for a Brighter KLCI Future
Executive Summary: Navigating a Challenging Earnings Patch
The Malaysian equity market has faced a challenging first half of 2025, with aggregate core earnings for both the CGS International coverage universe and the KLCI slipping by 5.5% and 2.5% year-on-year, respectively. In this in-depth analysis, we break down sector-specific performance, key results, and strategic stock recommendations, and explain why investors should remain optimistic for a market rebound as macroeconomic catalysts line up for the months ahead.
2Q25 Results: Disappointments and Bright Spots Across Sectors
The 2Q25 earnings season saw mixed results across the 94 stocks under active coverage by CGS International:
61% of companies reported earnings in line with expectations.
29% posted results below expectations.
Only 11% managed to surpass forecasts.
Compared to the previous quarter, the ratio of positive to negative surprises slipped slightly, suggesting a persistent but not escalating softness in corporate performance.
Key Sector Performance: A Closer Look
| Sector |
2Q24 (RM m) |
1Q25 (RM m) |
2Q25 (RM m) |
QoQ Change |
YoY Change |
1H24 (RM m) |
1H25 (RM m) |
YoY Change |
| Agribusiness |
1,134 |
1,284 |
1,248 |
-2.8% |
10.1% |
1,909 |
2,532 |
32.7% |
| Automotive |
473 |
196 |
356 |
81.6% |
-24.8% |
977 |
551 |
-43.6% |
| Construction & Materials |
660 |
703 |
682 |
-3.0% |
3.3% |
1,277 |
1,385 |
8.5% |
| Consumer |
962 |
1,096 |
910 |
-16.9% |
-5.4% |
2,032 |
2,005 |
-1.3% |
| Financials |
9,042 |
9,442 |
9,211 |
-2.4% |
1.9% |
17,863 |
18,653 |
4.4% |
| Healthcare |
669 |
613 |
626 |
2.2% |
-6.4% |
1,325 |
1,239 |
-6.5% |
| Oil & Gas |
1,222 |
721 |
753 |
4.4% |
-38.3% |
2,273 |
1,475 |
-35.1% |
| Technology |
189 |
184 |
168 |
-8.8% |
-10.9% |
389 |
352 |
-9.4% |
Sectors Facing Headwinds
– Consumer: Disappointments mainly due to company-specific factors. – Gloves: Slower-than-expected sales volume recovery. – Healthcare: Restrictions on claims procedures from payors led to a tapering of patient volumes. – Technology: Cost pressures weighed on results.
Sectors Outperforming
– Transport: MISC’s LNG earnings were underestimated and Westports’ container volume was higher than anticipated, thanks to US tariff frontloading.
Aggregate Earnings: Normalizing After Post-Pandemic Boom
The modest decline in aggregate core earnings (-5.5% YoY for the coverage universe, -2.5% YoY for KLCI constituents) is understandable given: – The higher base from strong post-pandemic growth (9.3% CAGR between 2022-2024). – External volatility, especially from US tariff changes post-Liberation Day.
If loss-making outliers (Hibiscus, LCTitan, PChem) are excluded, 1H25 core earnings are nearly flat (-1.4% YoY).
Macro Tailwinds: Why Investors Should Stay the Course
Despite the soft results, CGS International strongly advises investors to look beyond the current patch and prepare for a potential US Federal Reserve rate cut cycle. Key points: – Softer US inflation in July 2025 and Fed Chair Powell’s dovish tone at Jackson Hole suggest a rate cut could come as soon as September 2025. – A reduction in the Fed Funds Rate (FFR) and a narrowing spread with Malaysia’s Overnight Policy Rate (OPR) would be positive for the ringgit and Malaysian equities. – Historically, a narrowing FFR-OPR spread led to an 11.3% surge in the ringgit in 3Q24 and a 7.3% rally in the KLCI. – The KLCI and FFR-OPR spread show a -41% inverse correlation, indicating further potential upside for the market, particularly with foreign shareholding now at a record low (18.8% as of August 2025).
Revised KLCI Target: Room for Optimism into Year-End
– 2025F/2026F KLCI earnings growth now projected at 4.0%/7.2% (from 5.4%/7.3% previously). – Year-end KLCI target raised slightly to 1,690 (from 1,670), using a 14.9x P/E (-0.5 standard deviation). – High Conviction (HC) list is rebalanced: CIMB removed, RHB Bank added.
Detailed Company Analysis and High Conviction List
Below is a full breakdown of the highlighted stocks, including target prices, valuations, and forward dividend yields.
| Company |
Ticker |
Market Cap (US\$ m) |
Share Price (Local) |
Target Price (Local) |
2025 P/E (x) |
2026 P/E (x) |
2025 P/BV (x) |
2026 P/BV (x) |
2025 Dividend Yield |
2026 Dividend Yield |
| Tenaga Nasional |
TNB MK |
18,241 |
13.24 |
18.00 |
17.9 |
15.7 |
1.3 |
1.2 |
3.9% |
3.8% |
| Hong Leong Bank |
HLBK MK |
10,267 |
20.04 |
30.70 |
9.1 |
9.2 |
1.1 |
1.0 |
4.6% |
4.9% |
| SD Guthrie Bhd |
SDG MK |
8,238 |
5.04 |
5.85 |
20.4 |
25.6 |
1.6 |
1.6 |
2.4% |
2.0% |
| Gamuda |
GAM MK |
7,692 |
5.61 |
7.30 |
27.9 |
21.3 |
2.7 |
2.4 |
1.0% |
1.0% |
| RHB Bank Bhd |
RHBBANK MK |
6,804 |
6.60 |
7.36 |
9.0 |
7.8 |
0.8 |
0.8 |
6.4% |
7.6% |
| Telekom Malaysia |
T MK |
6,277 |
6.92 |
8.70 |
14.1 |
12.4 |
2.4 |
2.3 |
4.1% |
4.8% |
| Axiata Group |
AXIATA MK |
5,319 |
2.45 |
3.40 |
39.5 |
25.6 |
1.0 |
1.0 |
4.0% |
4.3% |
| Mr D.I.Y. Group (M) Bhd |
MRDIY MK |
3,336 |
1.49 |
2.09 |
22.3 |
18.8 |
6.9 |
6.3 |
3.4% |
4.3% |
| Fraser & Neave Holdings |
FNH MK |
2,351 |
27.12 |
36.50 |
17.0 |
15.9 |
2.5 |
2.3 |
3.2% |
3.3% |
| Dialog Group Bhd |
DLG MK |
2,534 |
1.90 |
2.55 |
23.0 |
19.7 |
1.7 |
1.6 |
1.8% |
2.1% |
| Malayan Cement Bhd |
LMC MK |
1,843 |
5.75 |
7.60 |
11.4 |
11.0 |
1.1 |
1.0 |
2.4% |
2.4% |
| Duopharma Biotech Bhd |
DBB MK |
314 |
1.38 |
1.74 |
15.4 |
13.2 |
1.8 |
1.6 |
2.8% |
2.9% |
| Mynews Holdings Berhad |
MNHB MK |
98 |
0.56 |
0.75 |
25.1 |
15.4 |
1.6 |
1.5 |
1.5% |
3.2% |
| Optimax Holdings |
OPTIMAX MK |
73 |
0.57 |
0.81 |
17.7 |
16.9 |
4.2 |
3.8 |
3.8% |
3.0% |
Company-Specific Highlights
- CIMB Group Holdings Bhd: Removed from the High Conviction list after 1H25 net profit fell short (46% of forecast) due to lower-than-expected net and non-interest income.
- RHB Bank Bhd: Added to the HC list. Notable for above-industry loan growth, improving operational efficiency, and projected ROE growth (9.6% in FY25F to 10.6% in FY27F). High dividend yield forecasted (6.4% in 2025F, 7.6% in 2026F).
Strategic Investment Outlook: Actionable Takeaways for Investors
– The short-term softness in earnings is being treated as a normalization phase after a period of exceptional post-pandemic growth. – The macro environment, particularly the likely narrowing of the FFR-OPR spread and a stronger ringgit, is expected to drive a market rebound. – The KLCI and coverage universe are positioned for mid-single digit earnings growth in 2025 and accelerating into 2026. – Investors are encouraged to accumulate fundamentally sound stocks, especially those on the High Conviction list.
Summary Table: CGS International Ratings Distribution (as of June 30, 2025)
| Rating |
Percentage of Coverage |
Investment Banking Clients (%) |
| Add |
70.6% |
1.1% |
| Hold |
20.5% |
0.5% |
| Reduce |
8.9% |
0.5% |
Final Thoughts: Why Malaysia Remains a Top ASEAN Equity Bet
Despite a softer patch in 1H25 earnings, Malaysia’s equity market remains poised for recovery. The combination of easing US monetary policy, a strengthening ringgit, and a compelling risk-reward profile—especially with record-low foreign ownership—makes Malaysia one of the more attractive markets in the region for investors looking to ride the next upcycle.
Stay tuned for further updates as CGS International continues to monitor and analyze the evolving Malaysian market landscape.
