Winners and losers

PETALING JAYA: The steep decline in the value of the ringgit is not bad news for everyone.

Export-oriented sectors such as rubber product manufacturers, semiconductor firms and furniture producers are prime beneficiaries because their production costs are mainly in ringgit while sales are in US dollars.

However, analysts cautioned that while the US dollar would have a positive impact on companies’ bottom lines, it would not translate into higher demand.

“The currency depreciation does not translate into higher demand,” said an analyst.

Malaysian rubber product manufacturers, namely, Top Glove Corp Bhd, Supermax Corp Bhd, Hartalega Holdings Bhd and condom manufacturer Karex Bhd are among the beneficiaries of the strong US dollar. Conversely, the input costs for these manufacturers are in ringgit terms.

About 90% of Malaysian rubber product manufacturers’ sales are in US dollars, while most of their costs such as raw materials, labour and electricity are in ringgit.

“We expect Malaysian glove makers to further gain global market share as has been in the past four years,” says AllianceDBS Research in a recent report.

Nevertheless, analysts cautioned investors because the benefits of the weak ringgit for this sector had been priced in.

For the semiconductor sector, while overall demand for electrical and electronic products is slowing down, players will see an improvement in their bottomlines due to the stronger US dollar.

According to a Hong Leong Investment Bank (HLIB) Research report in June, about 75% of Vitrox Corp Bhd sales are in US dollars and 30% of its costs are in US dollar terms, which mitigate the company’s exposure to its US dollar loans.

“Our sensitivity analysis suggests that every 1% change in the ringgit against the US dollar rate will impact Vitrox’s bottomline by 2%,” said Maybank Investment Bank Research.

The losers of the weaker ringgit are companies which import their raw materials in US dollars but sell the products in ringgit, and those with exposure to US dollar debt.

For the auto sector, the stronger US dollar will have a negative impact on certain players, such as UMW Holdings Bhd and Tan Chong Motor Holdings Bhd, according to Kenanga Research in a recent report.

“These companies have high denominated US dollar costs due to the import of completely-built-up vehicles, completely-knocked-down packs and other components, which will continue to corrode their profitability.

“Our sensitivity analysis suggests that for every 1% fluctuation in the US dollar from our base case, UMW’s bottomline could be affected by 3%.”

For Tan Chong, Kenanga Research said that for every 1% fluctuation in the US dollar, the company’s bottomline could be affected by 6%.

Meanwhile, the research house is positive on Berjaya Auto Bhd, as around 50% of its total cost is exposed to the Japanese yen.

“Based on our sensitivity analysis, every 1% drop in the yen will have a positive impact on the group’s 2016 net profit by 5%.”

Meanwhile, aviation players are at risk because of the borrowings in US dollars to fund the aircraft and parts.

The fuel cost could also be a burden, depending on the airline’s hedging strategy.

The Brent crude has fallen 13.88% year-to-date, while the ringgit has slid 13.33%.

For AirAsia Bhd, 80% of its debt is exposed to the greenback.

But HLIB Research said in a report that the low-cost carrier has hedged 70% of its foreign debt.

The impact of the stronger US dollar on telecommunications operators varies.

TIME Dotcom Bhd (TdC) is a beneficiary, as sales from its global bandwidth services, which forms 10% of its business, is in US dollars.

“Although TdC has US dollar debt, it is a small amount, and thus, has immaterial negative impact,” HLIB Research said.

The impact on DiGi.Com Bhd is neutral and it does not have borrowings in US dollars.

About 22% of Telekom Malaysia Bhd’s borrowings as of the first quarter were in US dollars, while Maxis Bhd’s and Axiata Group Bhd’s exposure to US dollar debt was at 32% and 44%, respectively, according to HLIB Research.

The weaker ringgit is also negative for Astro Malaysia Holdings Bhd, as about 70% of its content cost is in US dollars, while the receipts are in ringgit, said HLIB Research.

Winners and losers from weaker ringgit