Few Malaysian PLCs will feel impact of Brexit

PETALING JAYA: Maybank Investment Bank (MaybankIB) Research said the impact of Britain leaving the European Union (EU) or Brexit will be limited to few Malaysian public listed companies (PLCs).
In a note yesterday, it said that although a potentially slower UK economy or even a recession and a weaker British pound resulting from Brexit will be negative, it pointed out that Malaysian PLCs’ exposure to the UK is largely via investments in property developments, regulated assets and casino operations.
MaybankIB said major Malaysian investments in the UK within its research coverage are in property development (Battersea Power Station project by SP Setia Bhd and Sime Darby Bhd), regulated assets (YTL Power International Bhd), casino operations (Genting Malaysia Bhd), and renewable energy (KNM Group Bhd).
“A potentially slower UK economy could affect future take-ups at Battersea but, positively, the project has locked in sizeable sales (which have yet to be recognised) totalling £1.6 billion or 18.3% of its total project gross development value. But, a weaker pound should result in lower Malaysian ringgit profits (from the foreign exchange impact and margins).
“Based on our sensitivity analysis, a 10% weakness in the £/ringgit from our base case would impact our financial year 2017 net profit estimates for SP Setia/Sime by -3.5%/-1.1%, our revalued net asset value (RNAV) estimates by -1.5%/less than -1%,’’ it said.
MaybankIB noted that a potentially slower UK economy should not impact demand much at Wessex but it could affect visitors/collections at Genting Malaysia’s UK operations.
“A potentially weaker pound should result in lower translated ringgit profits and investment values,” it said.
Based on its sensitivity analysis, a 10% weakness in the pound-ringgit from its base case would impact net profit estimates for YTL Power and Genting Malaysia by -7% and -0.8%, respectively and its Revalued Net Asset Valuation estimates by -5% and -0.5%, respectively.
As for KNM’s Peterborough project, it added that a slower UK economy should not significantly impact the project’s financials. “We have yet to reflect any earnings impact from this project in our forecasts for KNM,” it said.
MaybankIB Research noted that global markets are increasingly jittery ahead of the Brexit referendum on June 23 after recent polls suggest that the odds are tilting towards a “leave”, rather than a “remain” outcome.
“In the event of a Brexit, the possible impact, in our view, includes:
1) a further surge in global market volatility, especially in foreign exchange markets, and the UK’s and eurozone’s equity and fixed-income markets;
2) short-term disruptions to the UK economy with a likely recession in the second half of 2016;
3) medium-term impact on the UK economy from likely prolonged negotiations on the exit terms and conditions; and,
4) headwinds for Europe, especially the eurozone, from the knock-on effect,” it said.