RAM reaffirms Malaysia’s gA2 rating

KUCHING: RAM Ratings has reaffirmed Malaysia’s respective global, ASEAN and Malaysia domestic-scale sovereign ratings of gA2/stable/gP1, seaAAA/stable/ seaP1 and AAA/stable/P1.

The ratings reflect the country’s resilient economic growth and the Government’s fiscal consolidation efforts. Malaysia’s external indicators are still supportive of its current ratings, although high government and household debt levels remain concerns.

“Malaysia’s economic growth, estimated at 5.8 per cent in 2017, exceeds our initial expectation of 4.5 per cent due to rapid export growth amid a broad based recovery in global economic conditions,” it said in a statement yesterday.

“Resilient growth in 2017 is also indicative of the domestic economy adjusting to previous structural reforms. In 2018, growth is projected at 5.2 per cent as domestic demand conditions will remain the key driver of growth, supported by various household income measures.

“These include a reduction in personal income tax rates, a larger disbursement of civil servant cash transfers and a scheduled minimum wage hike. Further, investment demand is anticipated to improve amid a broad- based capacity build up across various sectors and ongoing large development projects.”

In line with robust global economic conditions, RAM said Malaysia’s current- account surplus is estimated at 2.4 per cent of GDP for 2017, outperforming our initial forecast of one per cent.

While adjustments to Foreign Exchange Administration regulations had caused significant outflows in 1H 2017, it saw that the pace of net capital withdrawals has started to ease, as evidenced by a gradual rebound in foreign exchange reserves.

The current account is expected to remain in surplus at two per cent of GDP in 2018 amid continued global demand growth.

That said, Malaysia’s import demand is projected to accelerate between 2019 and 2021, premised on our expectation of existing and upcoming infrastructure projects, and may lead to some narrowing of its current account surplus during this period.

Referring to the MAI 20172018 sector outlook briefing on Thursday, MIDF Research detailed that the MAI expects Level 3 vendors to increase by 6 per cent to 430 suppliers, Level 4 vendors by 33 per cent to 120 suppliers and Level 5 vendors by 48 per cent to 40 suppliers.

Additionally, the organisation also expects exports of parts and component exports to continue on their steady growth path and see a further increase of 4 per cent to RM12.5 billion in 2018.

Unfortunately, completely built units (CBU) exports are not expected to follow this growing trend as their performance has been extremely disappointing in 2017 with only 18,887 units of CBU export achieved under a target of 31,000.

“The Minister (Mustapa) indicated the growing exports of CBUs will be a key focus going forward, but material development is only likely to be achieved within the next 5 years, and not in the next 2-3 years,” said the research arm.

All things considered, MIDF Research is optimistic on the outlook of the automotive sector in 2018 and has reaffirmed their ‘overweight’ rating on the sector and has announced Bermaz Auto Bhd (BAuto) as their top sector pick.

According to the research arm, BAuto is expected to perform well in 2018 as they are riding on several tailwinds.

For 2018, MIDF Research is expecting BAuto to see a 20 per cent y-o-y growth in their Mazda TIV due to its CX5 launch; a more than double in associate earnings contribution due to its export market expansion into South East Asia and production acceleration in the domestic market; and value unlocking from the listing of its Philippines unit.