Weaker ringgit may hit firms’ margins

KUALA LUMPUR: Automotive players’ margins could be negatively impacted by a potentially weaker ringgit resulted from the Overnight Policy Rate (OPR) cut to 3.0 per cent by Bank Negara Malaysia.

According to MIDF Research, Tan Chong Motor Holdings Bhd, UMW Holdings Bhd and Bermaz Auto Bhd are among the companies sensitive to foreign exchange (forex) movements.

“For every one per cent change in the US dollar to the ringgit, it will impact our forecast earnings for Tan Chong by 12 per cent for the financial year ending December 31 2019, followed by UMW (three per cent change to earnings for every one per cent change in the US dollar and yen) and Bermaz (1.4 per cent change for every one per cent change in the yen to the ringgit).”

It said Bermaz’s exposure to the yen was mainly via its complete built-up purchases, making up about 30 per cent of Mazda’s total industry volume (TIV).

MBM Resources Bhd will be least sensitive to forex changes as its earnings comprise Perodua, which entails highly localised contents of more than 90 per cent of its models.

“Our recent chat with players suggests up to a quarter of forex hedging. Our base case for 2019 forex (forecast) currently stands at RM4.05 vis-a-vis the dollar and yen at RM3.70.”

MIDF Research said the OPR cut was likely to spur consumer spending and potentially increase the TIV, adding that TIV growth historically had an inverse relationship with OPR.

“An OPR hike historically had a dampening impact on TIV growth and vice versa if OPR is cut, given improved consumer spending and basically, lower hire purchase rates.”

It said the local car sector had registered year-to-date growth of six per cent, mainly driven by new national car sport utility vehicle launches.

MIDF Research expects a flattish 0.2 per cent TIV growth rate this year.

“We maintain our positive view on car companies premised on a national car offensive with new model launches, which plugs the gaps in their model mix resulting in structural market share expansion.”

It said the TIV growth had so far this year largely been driven by Proton and Perodua models.