THE prolonged Russia-Ukraine tensions have disrupted the global supply chain and sent commodities prices skyrocketing.
Rising inflation has forced global economies to move into interest rate hiking cycle, with the US Federal Reserve chief Jerome Powell announcing to hike interest rates more aggressively with a third consecutive 75-basis-point move in September.
This provided support for the US dollar as seen in the 19.78 per cent year-to-date appreciation of the dollar index as of September 28, 2022.
Similarly, the the Malaysia ringgit is up 11.58 per cent year to date as of September 28, 2022 against the greenback, edging closer to the all-time high back in 1998 at 4.6480.
The rising US dollar will hurt net importers as they will be facing higher cost of goods however stronger outlook of the dollar will sustain interest in undervalued exporters that have strong fundamentals.
This would particularly benefit mid-to-large sized exporters to capture a larger market share as their goods appear to be less expensive compared to goods priced in US dollar.
In other words, exporters become more competitive in the global market. Since the exporters will still receive the same amount for each goods sold, they will gain in terms of higher volume of sales.
Thus, this would in turn benefit the country too as it will narrow Malaysia’s trade deficit or widen our trade surplus.
Below are the top 10 stocks that will benefit from high US dollar:
Press Metal’s primary aluminium and value-added products are indexed to LME aluminium prices and quoted in US dollar and therefore, it is exposed to foreign currency exchange risk.
1. Press Metal Aluminum Holdings Bhd
Press Metal Aluminum Holdings Bhd (PMetal) manufactures and sells extruded aluminium and other aluminium products to customers worldwide. The company operates in two segments based on function.
Press Metal’s primary aluminium and value-added products are indexed to LME aluminium prices and quoted in US dollar.
It is exposed to foreign currency exchange risk on sales, purchases and cash and cash equivalents and borrowings transacted in US dollar.
In 2021, a weakening of the ringgit or strengthening of US dollar by 10 per cent would increase the group’s profit by RM 5.02 million.
Despite the figure being considerably lower than 2020 ( RM119.9 million, which translated into 20 per cent of the PBT), the company’s equity at the same time will gain RM88 million in value, as its previous years earnings are retained in US dollar terms.
2. Guan Chong Bhd
The group has principally involved in manufacturing cocoa-derived food ingredients, namely cocoa mass, cocoa butter, cocoa cake, and cocoa powder. To date, the group has diversified their business from producing cocoa–derived food ingredients to the consumer downstream.
Geographically, the group operates in Malaysia, Singapore and Indonesia, of which key revenue is derived from Singapore.
With recognised worldwide acceptance, the majority of the group’s dealings are transacted in US dollar and pound.
Thus, any fluctuation in the US dollar would bring a significant impact on the company’s reporting profit.
3. Inari Amertron Bhd
Inari Amertron is a Malaysia-based investment holding company that is principally engaged in the outsourced semiconductor assembly and test services and electronics manufacturing services industries through a number of subsidiaries.
The company is exposed to foreign currency fluctuations primarily due to its normal trading activities whereby sales and purchases are principally transacted in US dollar.
They maintain a foreign bank account denominated in US dollar to act as a natural hedge against adverse foreign exchange fluctuations.
In 2021, the company’s net exposure to US dollar based on the carrying amounts of financial assets and liabilities has grew 53.8 per cent from RM248.6million in 2020 to RM382.3 million in 2021.
Meanwhile, a 10 per cent appreciation in US dollar will result in a 1.2 per cent increase in net profit, which was RM3.824 million while the US dollar previously held in the foreign bank will appreciate as well, which will increase total funds remunerated back to the parent company.
4. Malaysian Pacific Industries Bhd
Malaysian Pacific Industries is an investment holding company. The company along with its subsidiaries is engaged in manufacturing, assembling, testing, and sale of integrated circuits, semiconductor devices, electronic components, and lead frames.
The group’s geographical segments include Asia, US, and Europe. It derives a majority of revenue from Asia.
The company is exposed to international trade and they mainly trade with customers in three reportable segments which are: Europe (22 per cent of group sales), US (14 per cent of group sales) and Asia (64 per cent of group sales).
Despite having higher exposure to the Asia market, most sales and transaction for MPI are done in US dollar other than the functional currency ringgit.
According to the annual report, the company recorded a higher US dollar revenue of RM122 million contributed to additional gross profit and favorable foreign currency differences amounted to RM25 million.
Being among the world’s top five shipping conglomerates by market capitalisation, MISC has customers from energy majors and other national oil companies thus their functional currency being the US dollar.
5.Velesto Energy Bhd
Velesto Energy Bhd is a Malaysia based company which provides services to the oil and gas industry. It is engaged in the provision of drilling services for exploration, development and production wells and workover services to the upstream sector of the oil and gas industry.
It is also engaged in the provision of threading, inspection and repair services for Oil Country Tubular Goods in Malaysia and overseas. The company has a geographical presence in Malaysia, Indonesia, and Singapore.
The functional currency of the majority of the companies within the group is US dollar. The group less dependent of currency contracts and relies primarily on the natural hedge between its US dollar denominated revenue and US dollar-denominated borrowings and other liabilities to minimise its exposures to foreign currency risk.
In 2021, roughly 96.8 per cent and 81 per cent of trade receivables and trade payables are denominated in US dollar. This shows that the company has high exposures to fluctuation in US dollar.
The rising US dollar will hurt net importers as they will be facing higher cost of goods however stronger outlook of the dollar will sustain interest in undervalued exporters that have strong fundamentals.
6. MISC Bhd
MISC generates maximum revenue from its petroleum and product shipping segment, which includes the provision of petroleum tanker and chemical tanker services.
Being among the world’s top five shipping conglomerates by market capitalisation, MISC has customers from energy majors and other national oil companies thus their functional currency being the US dollar.
Despite paying a total dividend of RM1,473.0 million in FY21, the equity attributable to equity holders of the corporation of RM34,162.7 million as of FY21 was 5.9 per cent higher than the equity attributable to equity holders of the corporation as at FY20 due to net profit recognised for FY21 and gain on currency translation as the ringgit weakened against the US dollar during the year.
In 2021, a 10 per cent appreciation to the US dollar/ringgit cross rate would increase net profit by RM5.4 million, which translate into 0.3 per cent of the respective year’s profit before tax.
7. Dagang NeXchange Bhd
With significant US-Dollar denominated revenue contribution projected, principally from DneX’s Oil & Gas and semiconductor operations, the fluctuation in US dollar will impact the company’s performance.
The annual exchange rate average is at RM4.20 per dollar. Given the current exchange rate at RM4.64 per dollar which is higher than the forecast of EM4.00 to RM4.20 per dollar, DneX is set to post higher performance for 2022.
In FY end 2021, a 10 per cent rise in US dollar will increase the PAT by RM5 million, which translate into seven per cent of the period’s PAT.
8. Ta Ann Holdings Bhd
Sarawak-based Ta Ann uses the US dollar for purchases of raw materials and plant and machinery from Japan as well as sales of timber and timber products overseas.
In 2021, a 10 per cent increase in the US dollar will increase Ta Ann’s profit after tax by RM 0.68 million (2020: RM1.5 million, equivalent to 2 per cent of the year’s PAT).
Moreover, the Japanese government’s plan to improve infrastructure will help sustain the group’s plywood exports moving on.
9. Power Root Bhd
Geographically, Power Root derives a majority of revenue from local regions.
One of the greatest foreign currency exposures to the company is US dollar, since the company exports to various countries around the world.
Exports fell by 31 per cent from 2020 to 2021, mainly due to lockdown measures in Middle East market.
In terms of exchange rate sensitivity, a 10 per cent increase in the US dollar against the ringgit will increase the company’s profit by RM1.9 million which is 7 per cent of total PAT in 2021, while other variables remain constant. Thus, the company would benefit from US dollar’s appreciation.
Timber sales which account for JTiasa’s 18 per cent total company’s revenue are export-oriented. As result, the company is exposed to fluctuations in foreign currency.
10. Jaya Tiasa Holdings Bhd
The majority of Sarawak-based Jaya Tiasa’s revenue gets derived from the oil mill segment.
Timber sales which account for JTiasa’s 18 per cent total company’s revenue are export-oriented. As result, the company is exposed to fluctuations in foreign currency, primarily in US dollar.
In 2021, a 10 per cent rise in the US dollar will cause RM562,000 increase in PAT which is 2 per cent of the company’s PAT.
All in all, US dollar is expected the remain at elevated levels against the Malaysian Ringgit despite the ringgit already traded mostly higher against a basket of major currencies.
This creates challenging outlook as companies will need to contend with rising business cost, especially with higher raw material and labor costs.
Nevertheless, net exporters are conjectured to benefit from higher US dollar.
from Borneo Post Online https://bit.ly/3SPmbIk
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