Ten Bursa stocks benefit from a stronger dollar

Protracted tensions between Russia and Ukraine have disrupted the global supply chain and sent commodity prices skyrocketing.

Rising inflation has forced global economies into a cycle of rising interest rates, with US Federal Reserve chief Jerome Powell announcing a more aggressive hike in interest rates with a third straight move 75 basis points in September.

This has supported the US dollar, as evidenced by the 19.78% year-to-date appreciation of the dollar index as of September 28, 2022.

Similarly, the Malaysian ringgit is up 11.58% since September 28, 2022 against the greenback, approaching the all-time high from 1998 at 4.6480.

The rising US dollar will hurt net importers as they face higher cost of goods, but a stronger outlook for the dollar will keep interest in undervalued exporters with strong fundamentals.

This would especially benefit medium to large exporters to capture a larger market share, as their goods appear to be cheaper compared to goods priced in US dollars.

In other words, exporters become more competitive in the global market. Since exporters will always receive the same amount for each good sold, they will earn in terms of higher sales volume.

Thus, it would also benefit the country as it would reduce Malaysia’s trade deficit or increase our trade surplus.

Below are the top 10 stocks that will benefit from a strong US dollar:

Press Metal’s primary aluminum and value-added products are pegged to LME aluminum prices and quoted in US dollars and therefore are exposed to currency risk.

1. Press Metal Aluminum Holdings Bhd

Press Metal Aluminum Holdings Bhd (PMetal) manufactures and sells extruded aluminum and other aluminum products to customers worldwide. The Company operates in two function-based segments.

Press Metal’s primary aluminum and value-added products are indexed to LME aluminum prices and quoted in US dollars.

It is exposed to foreign exchange risk on sales, purchases and cash and cash equivalents and borrowings denominated in US dollars.

In 2021, a weakening of the ringgit or a strengthening of the US dollar by 10% would increase group profits by RM5.02 million.

Although the figure is considerably lower than in 2020 (RM119.9 million, or 20% of PBT), the company’s equity will at the same time gain RM88 million, as its profits from previous years are retained. U.S. dollars. .

2. Guan Chong Bhd

The group is mainly involved in the manufacture of food ingredients derived from cocoa, namely cocoa mass, cocoa butter, cocoa cake and cocoa powder. To date, the group has diversified its activities from the production of cocoa-derived food ingredients to the downstream consumer.

Geographically, the group operates in Malaysia, Singapore and Indonesia, with major revenues coming from Singapore.

With globally recognized acceptance, the majority of the group’s transactions are conducted in US Dollars and British Pounds.

Thus, any fluctuation in the US dollar would have a significant impact on the company’s accounting profit.

3. Inari Amertron Bhd

Inari Amertron is a Malaysia-based investment holding company principally engaged in outsourced semiconductor assembly and testing services and electronics manufacturing services through a number of subsidiaries.

The Company is exposed to foreign currency fluctuations primarily due to its normal business activities where sales and purchases are primarily conducted in US dollars.

They maintain a foreign bank account denominated in US dollars to act as a natural hedge against adverse exchange rate fluctuations.

In 2021, the company’s net exposure to the US dollar based on the carrying values ​​of financial assets and liabilities increased by 53.8% from RM248.6 million in 2020 to RM382.3 million in 2021.

Meanwhile, a 10% appreciation of the US dollar will lead to a 1.2% increase in net profit, which was RM3.824 million, while the US dollar previously held in the foreign bank will also appreciate, which will increase the total remunerated funds. to the parent company.

4. Malaysian Pacific Industries Bhd

Malaysian Pacific Industries is an investment holding company. The Company and its subsidiaries are engaged in the manufacture, assembly, testing and sale of integrated circuits, semiconductor devices, electronic components and lead frames.

The geographical segments of the group include Asia, the United States and Europe. It derives the majority of its income from Asia.

The company is exposed to international trade and trades primarily with customers in three reportable segments which are: Europe (22% of group sales), the United States (14% of group sales) and Asia ( 64% of group sales).

Despite greater exposure to the Asian market, most sales and transactions for MPI are conducted in US dollars other than the functional currency ringgit.

According to the annual report, the company recorded higher US dollar revenue of RM122 million, which contributed to additional gross profit and favorable exchange rate differences amounted to RM25 million.

As one of the top five shipping conglomerates in the world by market capitalization, MISC counts among its clients energy majors and other national oil companies, thus their functional currency is the US dollar.

5. Velesto Energy Bhd

Velesto Energy Bhd is a Malaysia-based company that provides services to the oil and gas industry. It is engaged in the provision of drilling services for the exploration, development and production of 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 is geographically present in Malaysia, Indonesia and Singapore.

The functional currency of the majority of group companies is the US dollar. The group is less dependent on foreign exchange contracts and mainly relies on natural hedging between its income denominated in US dollars and its borrowings and other liabilities denominated in US dollars to minimize its exposure to foreign exchange risk.

In 2021, approximately 96.8% and 81% of trade receivables and trade payables are denominated in US dollars. This shows that the company is highly exposed to fluctuations in the US dollar.

The rising US dollar will hurt net importers as they face higher cost of goods, but a stronger outlook for the dollar will keep interest in undervalued exporters with strong fundamentals.

6. MISC Bhd

MISC generates maximum revenue from its oil and product shipping segment, which includes the provision of tanker and chemical tanker services.

As one of the top five shipping conglomerates in the world by market capitalization, MISC counts among its clients energy majors and other national oil companies, thus their functional currency is the US dollar.

Despite paying a total dividend of RM1,473.0m in FY21, the company’s shareholders’ equity of RM34,162.7m in FY21 was 5% higher. .9% to equity attributable to shareholders of the company in FY20 due to a net profit recognized for FY21 and a gain on currency translation as the ringgit weakened against the US dollar in course of the year.

In 2021, a 10% appreciation in the US dollar/ringgit cross rate would increase net profit by RM5.4 million, resulting in 0.3% of pre-tax profit for the respective year.

7. Dagang NeXchange Bhd

With a large US dollar-denominated revenue contribution expected, primarily from DneX’s oil and gas and semiconductor businesses, the fluctuation of the US dollar will impact business performance.

The annual average exchange rate is RM4.20 per dollar. Considering the current exchange rate of RM4.64 per dollar, which is higher than the forecast of EM4.00 to RM4.20 per dollar, DneX is expected to show higher performance for 2022.

At the end of FY2021, a 10% rise in the US dollar will increase PAT by RM5 million, which is 7% of PAT for the period.

8. Ta Ann Holdings Bhd

Sarawak-based Ta Ann uses the US dollar for purchases of raw materials, plant and machinery in Japan, as well as sales of timber and timber products abroad.

In 2021, a 10% increase in the US dollar will increase Ta Ann’s after-tax profit by RM0.68 million (2020: RM1.5 million, or 2% of PAT for the year).

In addition, the Japanese government’s infrastructure improvement plan will support the growth of the group’s plywood exports.

9. Power Root Bhd

Geographically, Power Root derives the majority of its revenue from local regions.

One of the Company’s biggest currency risks is the US dollar, as the Company exports to various countries around the world.

Exports fell by 31% between 2020 and 2021, mainly due to containment measures in the Middle East market.

In terms of exchange rate sensitivity, a 10% increase in the US dollar against the ringgit will increase the profit of the business by RM1.9 million or 7% of the total PAT in 2021, while the other variables remain constant. Thus, the company would benefit from the appreciation of the US dollar.

Timber sales, which represent 18% of JTiasa’s total turnover, are export-oriented. Consequently, the company is exposed to fluctuations in foreign currencies.

10. Jaya Tiasa Holdings Bhd

The majority of Sarawak-based Jaya Tiasa’s income comes from the oil mill segment.

Timber sales, which represent 18% of JTiasa’s total turnover, are export-oriented. Consequently, the company is exposed to fluctuations in foreign currencies, mainly in US dollars.

In 2021, a 10% rise in the US dollar will result in an increase of RM562,000 in PAT, or 2% of the company’s PAT.

Overall, the US Dollar is expected to remain at elevated levels against the Malaysian Ringgit, despite the Ringgit already trading higher against a basket of major currencies.

This creates a difficult outlook as companies will have to deal with rising operating costs, especially rising raw material and labor costs.

Nevertheless, net exporters should benefit from the rise in the US dollar.






About Dwayne Wakefield

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