Broker: UOB Kay Hian
Date of Report: 4 June 2025

Malaysia Market Outlook 2025: Strategic Stock Picks and Sector Analysis Amid Challenging Earnings Season

1Q25 Market Review: Disappointing Earnings and Adjusted Forecasts

The first quarter of 2025 delivered a results season that fell short of expectations, primarily due to the disruptive impact of US trade policies. The market saw a decrease in positive earnings surprises—down to 10% from 21% in 4Q24—while disappointments remained high at 26%, only slightly improved from the previous quarter’s 28%. Key underperformers included the automotive, glove, and oil & gas sectors, while select companies such as Hong Leong Bank, IJM Corporation, Duopharma Biotech, and Pekat Group exceeded forecasts.
In response to the weaker-than-expected results, UOB Kay Hian has trimmed its bottom-up earnings forecasts for 2025 and 2026 by 4.2% and 3.6% respectively. Notable sector downgrades include automotive, glove manufacturing, property, and certain technology and oil & gas subsectors.

Key Earnings Forecasts and Strategic Outlook

FBMKLCI 2025/26 earnings outlook lowered by 4.2%/1.7%
Coverage universe earnings trimmed by 4.2%/3.6%
2025/26 earnings growth for coverage universe now at 7.8%/8.4%
FBMKLCI earnings growth revised to 4.8%/6.8%
Despite the lackluster results, the end-2025 FBMKLCI target is maintained at 1,620, suggesting a potential for year-end recovery and outperformance in the second half of 2025. The index’s valuation remains attractive, with a -1.0 SD PE (14.6x 2025F) compared to the 10-year mean (16.2x), and an earnings yield gap at a year-to-date high of 3.6% versus a five-year mean of 2.7%.

Market Strategy: Positioning for a 2H25 Rebound

With major US policy threats receding and a global slowdown largely priced in, Malaysia stands to benefit as a key winner from trade diversion and production on-shoring. The strengthening of the ringgit since April 2025 and potential for more neutral-to-positive foreign equity fund flows further support the positive outlook.

Sector Themes and Investment Focus

Reduce exposure to exporters due to MYR appreciation against USD and likely negative impact on next results season.
Favored investment themes:
Iskandar 2.0
Data center deals
Renewable energy, especially solar
Artificial intelligence and blockchain
Mega infrastructure (notably Penang LRT construction kick-off)
Preferred sectors: building materials, construction, utilities (solar), and select property names.

Top Stock Picks for 2025

The following companies have been identified as top picks, with new additions including Duopharma Biotech, Eco-Shop Marketing, and Sunway Berhad:

Quarterly Results: Standouts and Disappointments

Positive Surprises:

• Duopharma Biotech: Exceeded expectations on strong sales and improved margins due to lower raw material input costs.
• Hong Leong Bank: Strong net interest margin (NIM) expansion, robust non-interest income growth, and substantial provision write-backs.
• IJM Corporation: Outperformed on stronger-than-expected construction earnings.
• Pekat Group: Saw margin expansion from high revenue flow-through and double-digit operating margins from EPE.

Negative Surprises:

• Automotive: Impacted by fierce competition from Chinese brands, depressing sales volume.
• Glove Manufacturing: Weakened by frontloaded purchases from US customers in 4Q24.
• Oil & Gas: Hurt by declining year-to-date oil prices.
• Gamuda: Lower progress billing for new construction projects and reduced property sales recognition in Vietnam.
• IOI Properties: Start-up losses from Sheraton Grand Xiamen and lower progress billing.
• RGB International: Dragged down by sales and marketing division, offsetting improved technical support operations.
• VS Industry: Inventory adjustment from US customer to clear stock ahead of new product launches in 2H25.

Corporate Earnings: Net Profit and Growth by Sector

Sector Weightings and Year-to-Date Performance

• Overweight: Building Material, Construction, Glove Manufacturing, Oil & Gas, Property, Technology
• Market Weight: Banking, Consumer, Exchange, Gaming, Healthcare, Insurance, Manufacturing, Plantation, Port, REITs, Telecommunications, Utility
• Underweight: Automobile

YTD Price Performance by Sector

• Automobile: -28.9%
• Aviation: -0.5%
• Banking: -7.0%
• Building Materials: +1.1%
• Construction: -2.9%
• Consumer: -8.4%
• Exchange: -15.3%
• Gaming: -19.2%
• Glove Manufacturing: -45.5%
• Healthcare: -2.8%
• Insurance: -7.6%
• Manufacturing: -23.4%
• O&G – Heavy Engineering: -17.1%
• O&G – Asset Owners: -8.3%
• O&G – Offshore Contractors: +9.3%
• O&G – Shipping: -1.1%
• Plantation: -9.1%
• Port: -2.9%
• Property: -11.2%
• REITs: +6.4%
• Renewable Energy: +29.3%
• Tech – EMS: -23.7%
• Tech – Semiconductor: -30.4%
• Tech – Software: -5.8%
• Telecommunications: -2.5%
• Utilities: -6.0%
• FBMKLCI: -8.2%

Conclusion: Opportunities Amidst Downturn

Despite headwinds from US trade policies, foreign equity outflows, and sector-specific disappointments, Malaysia’s market presents selective opportunities, especially in sectors linked to trade diversion, infrastructure, and technology. With valuations at cyclically attractive levels and a rebound anticipated in the second half of 2025, investors are advised to focus on high-conviction picks in healthcare, construction, banking, and renewables, while exercising caution in export-driven sectors vulnerable to currency appreciation.
Top stock picks—including Duopharma Biotech, Eco-Shop Marketing, Gamuda Berhad, Hong Leong Bank, KPJ Healthcare, Pekat Group, and Sunway Berhad—offer a blend of defensive qualities and growth potential in the evolving Malaysian investment landscape.