Top Malaysian Stock Picks to Emerge as Tariff War Winners

Moomoo News MY joined discussion · Apr 28 14:06

At last week’s meeting, Malaysia’s Trade and Industry Minister, Tengku Datuk Seri Zafrul Abdul Aziz, informed US trade representatives that the country is open to discussions on addressing trade deficits and non-tariff barriers to lower tariffs.

Currently, Malaysia faces a 24% tariff on exports to the US under reciprocal trade framework. However, the implementation of further duties has been paused for 90 days—a move that has sparked concerns over potential ripple effects, such as currency volatility, trade diversion, and weaker economic growth.

Despite these risks, Malaysia’s market has demonstrated resilience. Even under stress, analysts project 2% earnings growth for $FTSE Bursa Malaysia KLCI Index (.KLSE.MY)$ in 2025, with pockets of strength in sectors like technology.

Where to Focus

We put the conclusion in front, according to Kenanga's research, some sectors look stronger than others. Renewable energy $PEKAT (0233.MY)$, healthcare $IHH (5225.MY)$, and construction $GAMUDA (5398.MY)$ are top picks. Banks like $AMBANK (1015.MY)$ and $MAYBANK (1155.MY)$ may rebound after recent declines.

Top Malaysian Stock Picks to Emerge as Tariff War Winners

Utilities like $TENAGA (5347.MY)$ offer stability. $PIE (7095.MY)$, with spare capacity, can capture new business. However, media and some consumer stocks, such as $F&N (3689.MY)$, face risks.

Sector Impacts: Strengths and Weaknesses

From the perspective of specific industries, Kenanga believes Malaysia’s tech sector performs better than regional peers. Many firms here have EBITDA margins above 20%.

What is EBITDA Margin?

EBITDA margin is a profitability ratio that measures how much in earnings a company is generating before interest, taxes, depreciation, and amortization, as a percentage of revenue. EBITDA Margin = EBITDA / Revenue.

In comparison, companies in Indonesia, Thailand, and Vietnam typically have margins between 10% and 20%. This advantage helps Malaysian tech firms handle cost pressures better.

The glove industry is adapting to trade changes. For example, $TOPGLOV (7113.MY)$ is gaining orders as Chinese vinyl gloves face high tariffs. However, currency risks remain. If the Malaysian ringgit strengthens by 1%, TOPGLOV’s net profit could drop by 1-2%.

As with the last tariff policy, we may still benefit from trade diversion. For instance, $KAREX (5247.MY)$, which gets 20% of its sales from the U.S., is exploring ways to shift production from high-tariff countries like China and Thailand. $PIE (7095.MY)$, with spare production capacity, is ready to take new orders. Meanwhile, firms like $SLP (7248.MY)$, with less than 5% U.S. exposure, face minimal disruption.

Currency Effects

A weaker U.S. dollar helps companies with dollar-denominated debt. $IOICORP (1961.MY)$, $KLK (2445.MY)$, and $TENAGA (5347.MY)$ benefit because they borrow in dollars. On the other hand, $MRDIY (5296.MY)$ imports 70% of its products from China. A weaker yuan reduces its costs.

However, currency risks exist. $GAMUDA (5398.MY)$ earns over half its profits from Australia. If the Australian dollar weakens, earnings could suffer. Regional currencies like the Indonesian rupiah are also declining. This affects Malaysian banks with overseas operations, such as $MAYBANK (1155.MY)$ and $CIMB (1023.MY)$.

Economic Slowdown Risks: Banks and Consumer Sectors

Banks face challenges if growth slows. Trade-related loans make up 12-14% of their portfolios. In a stressed scenario, bank earnings growth could drop by 1.9-4.8 percentage points.

Consumer goods companies may face weaker demand as some buyers shift to cheaper alternatives. However, essential goods producers like $NESTLE (4707.MY)$ are likely to remain more resilient. Meanwhile, the redirection of China's excess production capacity to Malaysia could benefit MRDIY, which sources approximately 70% of its products from China.

Plantation companies like $IOICORP (1961.MY)$ and $KLK (2445.MY)$ benefit from dollar revenues, which help offset currency risks.

Earnings Outlook: Stress Scenarios

Under normal conditions, FBM KLCI earnings could grow by 6.8% in 2025. If GDP growth slows to 4%, earnings growth may fall to 4.4%. In a severe scenario, with higher bank credit costs and interest rate cuts, growth could drop to 2.2%.

Despite this, valuations remain attractive. The KLCI trades at 14.3x PER, below its 10-year average. This suggests potential upside for large-cap stocks.

The IMF, having just downgraded global growth projections last week, forecasts Malaysia's economy to grow 4.1% in 2025 - below the government's 4.5%-5.5% estimate currently under reassessment.

Conclusion:

Tariff negotiations may take time, but Malaysia’s market has strengths. Companies with high margins, low U.S. exposure, and dollar hedges are well-positioned. Investors should focus on resilient sectors while staying cautious about cyclical risks.

What’s your take on tariffs? Share your thoughts in the comments!

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