As Malaysia’s most recent election comes to a close, the market is showing increased confidence.
The Ringgit has increased since Anwar became Malaysia’s 10th prime minister, coupled with better-than-expected inflation data for October and the strongest spike in Malaysian stock prices in more than two years. Is it time to examine the Malaysian market in light of these current events?
Here are several stocks you can bet with on the new Malaysian Government in place.
Top agenda for the ruling Government
Alright, but first, we need to grasp the general direction of the new Government. Many issues will be addressed, including rising living costs, corruption enforcement, and bureaucratic reforms. All of this would be made explicit in the impending 2023 state budget, which the previous Government passed prior to calling a general election with the goal of currying favour for its own party.
This US$80 billion budget, the second largest in the country’s history, seeks to reduce the cost of living by lowering taxes, offering tax breaks for low-income workers, and granting a bevvy of grants and loans to companies. All of this will be reviewed by the new administration, which means that the type of assistance (if any) and hence stocks that may benefit may change.
While we wait for this, which is projected to be completed by the end of January, perhaps we can look at the manifestos of the new governing administration, Pakatan Harapan. Among the ten manifestos, in which the complete 98-page version can be viewed here, here are several key issues that the party has expressed they would like to address and which investors could be interested in.
Pakatan Harapan Manifestos:
- Reduce living costs by eliminating cartels
To address inflation and rising commodity prices, PH committed to eradicating cartels in the food and key supply industries. This is done to encourage competition and allow new businesses to enter the food supply and basic necessities market. At the same time, the party also hopes to provide adequate incentives to raise the production of food and other necessities to reduce market pressures created by rising prices; thus, it remains to be seen whether this would benefit or hinder large conglomerates.
- Enhance measures to help Malaysians in acquiring their first property.
PH stated that they would create enough affordable homes for purchase and rent in areas most in need. They plan to reinstate an RM3 billion JaminPinjam fund to guarantee affordable house financing for first-time purchasers. Apart from that, for first-time house buyers, PH will waive all stamp duties on properties worth less than RM500,000.
- Increase employment security and protection via new policies.
PH said that in order to acquire the status of a high-income country, they will implement a comprehensive minimum wage policy plan. PH will establish a regulatory organization to execute social security plans for six million gig workers, including delivery riders and e-hailing drivers. The organization will handle contract agreements, free life insurance programs, and funeral payments up to RM10,000. They will also pay a specific allowance to contract workers who have lost their jobs and are actively seeking new employment.
- Enhancing the healthcare system
In terms of healthcare, PH intends to expand public healthcare spending to 5% of GDP within five years in order to maintain pace with national population growth, increased longevity, and existing demands. To address the issue of contract physicians, PH will establish a National Health Services Commission to strengthen human resource management, staffing, training, and career development of healthcare personnel. Aside from that, the mySalam initiative will be expanded to include the M40 demographic. This program will cover critical diseases and hospitalization for health evaluation and mental healthcare, including counselling.
Potential stocks that may benefit
Following that, here are several stocks that may gain from the new ruling administration.
- ‘Sin’ stocks
While not directly benefiting from PH policies, ‘sin’ stocks like Genting Malaysia and Sports Toto Bhd have benefited and may continue to benefit from a PH-ruled government. This comes as a result of its victory in preventing the pro-Malay, Islamist alliance Perkiatan Nasional from becoming the Government, which would have likely clamped down on ‘sin’ sector stocks like casinos and breweries.
1) Genting Malaysia Bhd (KLSE: GENM)
Genting Malaysia’s core business is in leisure and hospitality, which includes theme parks, casinos, hotels, resorts, and entertainment.
Genting Malaysia, which is listed on the Bursa Malaysia and has a market capitalization of approximately RM15 billion, owns and operates major resort properties such as Resorts World Genting in Malaysia, Resorts World New York City and Resorts World Catskills in the United States, Resorts World Bimini in the Bahamas, Resorts World Birmingham and over 30 casinos in the United Kingdom, and Crockfords Cairo in Egypt.
Genting Malaysia also owns and runs two Malaysian coastal resorts, Resorts World Kijal in Terengganu and Resorts World Langkawi on the island of Langkawi.
The company’s yearly revenue has been halved from its pre-pandemic level in 2019. However, with the reopening of the border, Genting Malaysia’s financial position has strengthened, with revenue for the 2022 nine-month period nearly tripling compared to a year before. These gains were driven primarily by RWG’s increased total volume of business from both the gaming and non-gaming segments following the lifting of COVID-19 restrictions and the reopening of national borders on 1 April 2022.
Genting Malaysia recently lost its bid for a Macau license to operate there, but many consider this to be a positive thing because it ensured the business maintained a healthy gearing ratio while focusing on capital management in the current economic situation.
In terms of the outlook, while global economic headwinds will continue to pose challenges, international travel is projected to increase, benefiting Genting Malaysia.
2) Sports Toto Berhad (KLSE: SPTOTO)
Sports Toto Berhad, as the name suggests, largely deals with betting. The group’s principal business includes:
- Operation of Toto betting
- Motor retailing, repair & maintenance and provision of aftersales services
- Design, manufacture, and distribution of electronic wagering and voting systems, as well as the supply of software licenses and support
Sports Toto Berhad reported a 77.9% growth in revenue in the first quarter that ended on 30 September 2022, compared to RM797.6 million in the previous year’s equivalent quarter. Its pre-tax profit, likewise, increased to RM106.2 million from RM12.4 million. This favourable result was mostly attributed to a higher number of draws conducted in the current quarter compared to the previous year’s equivalent quarter, which was negatively impacted by the Malaysian Government’s statewide lockdown from 1 June 2021 to 13 September 2021.
Moving forward, some expect spending to be curtailed owing to increasing inflation and downturn; nevertheless, I view Toto as a beacon of hope for people, something that a downturn may not negatively impact. Also, Sports Toto Berhad may continue to benefit from the new Malaysian Government’s softer stance on such “sin” stocks and the country’s ongoing economic recovery.
- Banks
The next industry that may benefit from a change in Government is banking, which would do well in a more stable political environment. Similarly, while PH did not mention policies that would directly impact the banking sector in its manifesto, due to PN not forming the Government in which it had planned to spur the growth of the Islamic financial system to 50% of the total banking system from 35% currently, this sector, along with the stable political environment, may be a beneficiary.
3) Malayan Banking Bhd (KLSE: MAYBANK)
Maybank, Southeast Asia’s fourth largest bank in terms of assets, is one such bank. Maybank’s net profit increased 28.5% to RM2.17 billion in the most recent quarter as the company benefited from the region’s strengthening economic climate.
As of 30 September 2022, total Group gross loans increased by 8.2% year on year across both Global Banking and Community Financial Services sectors, driven by the growth of 13.1%, 7.9%, and 4.0% in its home countries of Indonesia, Malaysia, and Singapore, respectively. Aside from that, the net interest margin (NIM) for the nine-month period ending September 2022 increased 8 basis points to 2.39% from 2.31% as interest rates rose over the year.
Maybank also maintains strong capital and liquidity levels, with a CET1 capital ratio of 13.84% and a total capital ratio of 17.15%. The group’s liquidity coverage ratio is at 144.2%, which is well over the regulatory requirement of 100%.
- Healthcare
Noting that PH pledged to boost healthcare expenditure to more than 5% of overall GDP, this bodes well for this healthcare industry.
4) IHH Healthcare Bhd (SGX: Q0F or KLSE: IHH)
IHH Healthcare Bhd is one such healthcare stock. It is Asia’s largest private healthcare group concentrating on premium health services. Apart from its operations in Malaysia, the group provides a full range of integrated healthcare services, ranging from clinics to hospitals to highly specialized care and a wide range of acute medical services, in countries such as Singapore, Turkey, India, Greater China (including Hong Kong) and across Asia, as well as Central and Eastern Europe, with a total of 82 hospitals.
If you are a REIT investor, you have probably heard of ParkwayLife REITs, which owns a portfolio of hospitals in Singapore, such as Mount Elizabeth and Gleneagles). This REIT is one of IHH Healthcare’s subsidiaries.
In addition, IHH Singapore is the company which curates the MyHealth360 app, a mobile app that allows access to in-house patient medical records, curated information, and, in the future, an extended range of health and wellness services.
As of the most recent quarter, IHH Healthcare’s fundamental operating performance has improved as it enters the post-Covid phase. Revenue climbed by 3% year on year as more local and overseas patients returned. Unfortunately, the group’s net income fell 54% due to gains from extraordinary items recognized in Q3 2021, such as an increase in deferred tax assets of RM248.2 million, combined with the effect of MFRS 129-related adjustments and foreign currency losses in Q3 2022.
Looking ahead, the organization anticipates that inpatient loads and bed occupancy will increase in a post-COVID environment. Along with the Malaysian Government’s plans to expand public spending in this area, IHH Healthcare might be a long-term benefactor if its current trajectory continues.
- Property developer
With additional assistance for Malaysians to purchase a new house, property sector firms such as property developers may benefit.
5) Sime Darby Property Bhd (KLSE: SIMEPROP)
On the list is Sime Darby Property, Malaysia’s largest property developer in terms of land bank, with around 15,400 acres available. The firm is involved in the development of residential, commercial, and industrial properties across Malaysia, as well as having a presence in the United Kingdom.
For 2022, the group’s 9-month year-to-date profit has already doubled due to rising revenue across all business segments. The group’s revenue increased by 12% year on year to RM689.3 million.
While property developers are often heavily geared, the group’s financial health is bolstered by its cash position of RM876.2 million and net gearing ratio of 28.2% as of 30 September 2022.
Sime Darby Property expects further launches in the residential and industrial divisions in Q4 FY2022, as well as the reintroduction of new high-rise residential offerings in Putra Heights, Selangor, and Taman Melawati, Kuala Lumpur. Increased land activation and launches, as well as the fulfilment of the PH manifesto, might lead to an increase in demand for this sector.
- Construction sector
Last but not least are the infrastructure players. Part of PH’s manifesto includes upgrading basic infrastructures such as water, electricity, sewerage systems and roads on the peninsula and in Sabah.
As a result of this, Sarawak and Sabah-based construction sectors stand to benefit, and one of these companies is Cahya Mata Sarawak Bhd.
6) Cahya Mata Sarawak Bhd (KLSE: CMSB)
Cahya Mata Sarawak Berhad is a well-established player in Sarawak’s development and the state’s sole cement provider. Today, it has around 35 firms in its portfolio that are involved in cement production, building materials, trade, construction, road maintenance, property development, financial services, smelting, telecom infrastructure, education, and other services.
While the firm hasn’t seen a lot of sales growth, recent developments may give investors some hope. The group’s revenue of RM702.17 million for the first nine months of 2022 marks a 23% increase over the previous year’s revenue of RM572.93 million, owing to increased contributions recorded by the majority of its Divisions.
The group’s profit after tax and non-controlling interests also increased by 49% to RM265.95 million in 9MFY22 from RM179.06 million recorded in 9MFY21.
With more potential development for the Borneo states, Cahya Mata Sarawak Bhd may be a long-term play for investors.
Conclusion
All in all, these are only a few of the industries and stocks that may benefit from the new ruling Government. That being said, things remain fluid, and the situation may evolve. As such, investors should remain cautious and observe if the new unity government can prove their capacity to work together as a team; otherwise, none of this will be achievable if differing ideologies come in the way.
Aside from that, investors should focus more on the firms’ fundamentals and do a far more in-depth examination of the aforementioned stocks if they are interested. For the time being, let us wish Malaysia the best of luck and success!