A WEAK ringgit generally benefits selective export-driven businesses, providing a competitive edge over competitors based in other countries.
On this note, CGS-CIMB Research expects a strong pick-up in export volumes for export-driven businesses to sustain going forward coupled with margin expansion from currency gains.
“That global freight rates have declined recently as global shipping constraints eased will benefit export-driven companies given the better availability to ship more orders at more economical rates,” projected analyst Walter Aw in a small cap stock update.
“We gather that the export orders of some of the export-driven companies we cover had been affected since 2H 2020 as some of their customers had been holding back orders in a bid to wait for lower shipping rates and better space availability.”
However, CGS-CIMB Research’s recent channel checks revealed that certain companies have recently seen strong order flow from their export customers on the back of re-stocking activities as well as impact from trade disruptions from China’s COVID-19 policy.
Year-to-date (YTD), the ringgit has weakened against the greenback by -8%. This is higher than the depreciation of the currencies of neighbouring countries (Indonesian rupiah by -5%, Singapore dollar by -4% and the Vietnamese dong by -3%) against US$ with exception of the Thai baht by -10%).
“We are positive on the impact of Malaysia’s border re-opening on April 1,” asserted CGS-CIMB Research. “With no travel restrictions, companies with significant export exposure are able to travel overseas to conduct business and marketing activities.”
In addition, their export customers are now able to audit their operations and manufacturing facilities, thus leading to higher orders, especially from new customers. Also, Malaysia’s border re-opening has also enabled companies to gradually increase their intake of foreign workers.
“This is positive for companies to drive higher production volume as well as to cater to their expansion plans,” reckoned CGS-CIMB Research. “We understand that certain companies have been facing prolonged worker shortage due to the freeze on foreign worker intake since 2020, leading to subpar production utilisation rates.”
The research house further identified “key beneficiaries of the tailwinds of the current operating environment” to comprise:
- Consumer and industrial stocks: Wellcall Holdings Bhd, Karex Bhd, Power Root, Panasonic Manufacturing Malaysia Bhd and Kawan Food Bhd; and
- Packaging stock: Thong Guan Industries Bhd as it stands to benefit given its strong exposure to US$-denominated markets.
“In our view, technology, rubber glove and palm oil-related companies are not key beneficiaries of the current environment due to the overall weak global supply-dynamics in each sector,” added CGS-CIMB Research. – Sept 7, 2022
