PENANG-BASED companies could be some of the biggest winners in the faster economic growth forecast for Malaysia this year.
The twin boosts of a recovery of the semiconductor industry and the booming tourism sector in Asia have ignited investor interest, and that is growing by the day.
Analysts have recently begun studying in earnest some of the 90 Malaysia Securities Exchange-listed companies based in the state, a disproportionately large number of which are involved in high technology and the growing consumer market segment. And they like what they see.
Although hit economically by the slowdown in net foreign direct investment (FDI) to Malaysia and slump in semiconductor demand over the past few years, coupled with tourism being hit by the SARS outbreak and Iraq war in 2003, the outlook is looking significantly brighter for this most urban of Malaysian states.
“It’s one of the ‘happening’ places right now,” said an analyst with an investment bank who has increased the frequency of visits from his Kuala Lumpur base. “You can actually feel it on the ground; there’s much more interest compared with only three months ago,” he said.
In fact, Penang has set ambitious gross domestic product (GDP) growth targets that outpace Malaysia’s forecast upper limit of 6.5% this year and beyond. Under the Penang State Development Plan 2 (2001–2010), it has targeted GDP growth of 7.6% for 2006–2010, to be driven primarily by the manufacturing and services sectors.
GK Goh analyst Ivy Ng said in a report on Wednesday that a key driver of the manufacturing sector in the immediate term was the recovery in the semiconductor industry, one of two pillars of Penang’s economy. The other, its tourism industry, was also riding a rebound in visitor arrivals to Malaysia, she added.
Each year, the state attracts some 3.3 million visitors – more than half from abroad. With the launch of new air services like direct flights between London and Penang since last October, the numbers are set to climb.
Some of Malaysia’s most progressive companies in the electronics sector with among the highest research and development spending in the country are also based in Penang.
For example, Eng Teknologi Holdings Bhd, a component maker for the hard disk drive industry, is set for strong earnings growth over the next two years on the back of higher orders from existing and new customers, and increased outsourcing, analysts say.
Globetronics Technologies Bhd, an integrated contract manufacturer of semiconductor-based products and services supplying many Penang-based multinational companies like Agilent and Intel, would be a beneficiary of the personal computer (PC) replacement cycle.
With 19% growth forecast for global chip sales in 2004, fellow “Penangites”, AKN Technology Bhd and Ire-Tex Corp Bhd, will also be beneficiaries.
According to Hwang DBS Vickers Research, Ire-Tex could also benefit from new income sources such as the diversification into polymer-based packaging material to the electronics and semiconductor sub-sectors.
GK Goh’s Ng said that previous fears over further plant relocations to lower cost sites like China were also abating. In fact, she noted that state authorities were getting more enquiries from foreign companies looking to invest in Penang.
The political factor, too, is not to be overlooked. After the resounding election victory by the Barisan Nasional, led by Penangite Datuk Seri Abdullah Ahmad Badawi, expectations are for an acceleration in infrastructure development in the state.
Major projects in the pipeline include the RM2.3bil second Penang bridge, RM1.1bil Penang Outer Ring Road, RM650mil Penang light rail transport network, and the relocation of the Penang Turf Club.The property sector, too, is widely expected to benefit with Penang’s improving economy and infrastructure.
GK Goh said companies like Asas Dunia Bhd – “one of the purest plays on Penang property,” with 80% of its revenue derived from Penang development projects – could be a key benefactor. It has been included in the stockbroking firm’s top picks.
Other Penang-based property firms like Eupe Corp Bhd and E&O Property Development Bhd, with strong earnings, could also gain.Additional top picks for GK Goh in Penang include NTPM Holdings Bhd, a leading toilet-roll maker with a 50%–60% share of the domestic market, stockbrokers Hwang-DBS (M) Bhd, and Mesdaq-listed Dreamgate Corp Bhd, a supplier of gaming machines. Stock Watch On ASAS Stock Watch On GTRONIC Stock Watch On NTPM Stock Watch On ENG Stock Watch On AKN Stock Watch On IRETEX