What a Brexit means for Malaysian PLCs: Maybank

by **Cals** Fri 17 Jun 2016, 03:01

What a Brexit means for Malaysian PLCs: Maybank

By Michelle Zhu / theedgemarkets.com | June 16, 2016 : 11:45 AM MYT

SINGAPORE (June 16): Maybank says the impact of a Brexit on Malaysian public listed companies (PLCs) are “limited to just a few”, despite popular opinion that such a scenario will cause far-reaching implications for markets around the world.

The Brexit referendum taking place on June 23 will decide whether the UK stays in, or leaves, the EU.

  (See: “[size=15]Brexit or Bremain, BlackRock expects ‘far-reaching market implications'")

In a Wednesday report, analyst Wong Chew Hann says that in the event of a Brexit, Maybank foresees a further surge in global market volatility. This is especially so in FX markets, UK and Eurozone equities, and fixed income markets.

In the short term, Wong believes there will be disruptions to the UK economy with a recession that may happen in 2H16, while in the medium-term, the UK economy will be suffer impact from likely prolonged negotiations on the exit terms and conditions. Lastly, Europe – especially Eurozone – will experience headwinds from the knock-on effect.

Despite these plausible consequences, the outlook does not seem as dire for PLCs under Maybank’s research coverage. Major Malaysian investments in the UK are property development Battersea by SP Setia and Sime Darby, regulated assetYTL Power, casino operator Genting Malaysia (GENM), and renewable energy company KNM Group.

“A potentially slower UK economy could affect future take-ups at Battersea but positively, the project has locked in sizeable sales totalling to GBP1.6 billion ($3.08 billion) or 18.3% of its total project GDV,” says Wong. He adds that likewise, a slower UK economy should not exert much impact on YTL Power’s Wessex Water demand, nor KNM’s Peterborough project’s financials.

Wong nevertheless acknowledges the fact that a weaker GBP should result in lower MYR profits from the FX impact and margins.

Maybank’s sensitivity analysis reflects that a 10% weakness in the GBPMYR would impact FY17 net profit estimates for SP Setia, Sime Darby, and YTL Power by a decrease of 3.5%, 1.1% and 7% respectively, with a drop in revalued net asset valuation (RNAV) estimates by 1.5%, 1% and 5% respectively. The research house has yet to reflect any forecasts for KNM.

Wong points out that unlike its peers, Genting UK’s operations may in fact see a resulting influence visitor or collection figures resulting from a slower UK economy. Yet, a 10% weakness in the GBPMYR would only impact GENM by a 0.8% drop in FY17 net profit estimates and 0.5% for RNAV.

Maybank’s top picks are SP Setia at a target price of MYR7.78 (S$2.57) and KNM Group at a target price of MYR 80 cents, the only two stocks with a “buy” rating. The research house has placed “hold” calls on Sime Darby, YTL Power and GENM.
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