Should Listed Companies Issue Profit Warnings in Light of Increased US Tariffs?

Effective April 9, Malaysia will face a 24 per cent reciprocal tariff from the US as part of a broad trade policy targeting countries with which it has large trade deficits.The higher tariff however does not cover all goods headed for the US Semiconductors are among goods that have been exempted from the 24 per cent tariff.The imposition of increased tariffs by the US on goods from other countries presents significant economic challenges for businesses worldwide.

These tariffs can directly impact revenue, costs, supply chains, and overall market confidence. Given these disruptions, a pertinent question arises: Should listed companies issue profit warnings in response to these tariff changes if a material impact is foreseen?The introduction of tariffs by the US affects companies in various ways:Increased Costs and Reduced Competitiveness: Tariffs raise the cost of exporting goods to the US, leading to higher prices for consumers in the US. Consumers in the US may therefore opt for cheaper products from another country or from the US itself – the latter being Trump's anticipated preference in line with the Make America Great Again (MAGA) mantra.



The higher costs can lead to decreased competitiveness resulting in reducing sales in the US market. Companies may resort to reducing profit margins to make their products competitive.Currency Volatility: Tariffs can influence currency fluctuations, impacting companies with international operations.

Investor Sentiment: Market reactions to trade tensions can cause volatility, affecting stock prices and investor confidence.The KLCI was down 60.34 points to 1443.

80 on 7 April 2025, primarily due to the tariffs imposed by the US on Malaysia and many other countries.Arguments for Issuing Profit WarningsA profit warning is a formal notification issued by a publicly listed company to inform investors that its financial performance will be worse than expected. These warnings help maintain transparency, manage investor expectations, and reduce the risk of sudden stock price drops due to negative earnings reports.

Transparency and Investor Trust Listed companies have a duty to keep shareholders informed of material financial risks. If tariffs are expected to cause a significant downturn in revenue or profits, issuing a warning can help manage investor expectations and prevent sudden market shocks.Market Stability Providing early warnings allows investors to adjust their positions strategically, rather than reacting to sudden and unexpected earnings drops, which can lead to extreme market volatility.

Stakeholder Confidence Suppliers, customers, and creditors rely on financial transparency. A profit warning enables stakeholders to make informed decisions about their business relationships with the company.Risk Mitigation By acknowledging potential risks, companies can outline contingency plans and reassure investors that they are actively addressing challenges rather than being caught off guard.

Regulatory Compliance Bursa Malaysia requires companies to disclose material financial changes. If tariffs are projected to lead to lower-than-expected earnings, failing to issue a warning could lead to regulatory scrutiny and potential regulatory consequences.Bursa Malaysia RequirementsBursa Malaysia requires listed companies to disclose material information, including profit warnings, to ensure transparency and protect investors.

This includes immediate announcements of any information that could significantly impact the company's securities or investor decisions.Bursa Malaysia's Listing Requirements (LR) mandate that listed companies make immediate public disclosure of any material information.Information is considered material if it is reasonably expected to have a material effect on the price, value, or market activity of the listed company's securities, or the decision of a security holder or an investor.

A profit warning or guidance is considered material information and must be disclosed promptly.Bursa Securities can take enforcement action against listed companies that fail to comply with the LR.Key Considerations Before Issuing a Profit WarningBefore issuing a profit warning, companies should assess:Materiality: Determine whether the tariffs will significantly impact earnings beyond normal market fluctuations.

The foreseen impact must be deemed material for the profit warning reporting obligations to crystallise.Financial Projections: Evaluate internal forecasts and consider multiple scenarios.Alternative Mitigation Strategies: Explore operational adjustments before resorting to a profit warning.

ConclusionThe decision to issue a profit warning due to US tariffs depends on a company's specific financial exposure, and strategic outlook. While transparency is crucial, companies must carefully weigh the risks of premature disclosure against the need to maintain investor confidence. Ultimately, a balanced approach—factoring in financial data, market conditions, and long-term strategy—is essential in navigating tariff-related uncertainties effectively.

© New Straits Times Press (M) Bhd.