Development

• MYR has weakened to multi-year low, breached the previous low of RM3.73/US$ and inching towards the pegged level of RM3.80/US$.
• While this has compounded the subdued sentiment on the local equity market on concerns about the impact on economic data and equity market, there is a silver lining as certain sectors and stocks would benefit from the strong US$ due to their US$-based revenue.
• In this report, we undertook a thorough review to identify the winners and losers from a strong US$.

Impact on sectors

Positive –

• Gaming (Neutral) – revenue from US operations;
• Rubber Prod (Neutral) – most sales in US$ while cost in MYR;
• Sea Transportation (Underweight) – almost all revenue in US$ while there is a small portion of costs in Ringgit ; and
• Tech (Overweight) – majority sales in US$, partly offset by raw material cost in US$, outweigh US loan.

Negative –

• Automotive (Neutral) – higher cost of imported materials & CKD costs;
• Air Transportation (Overweight) – higher fuel cost;
• Power (Overweight) – higher coal cost & US$ debt; and
• Telco (Neutral) – US$ debt.

Impact on stocks

Positive –

• Evergreen, Eversendai, GenM, Hartalega, Homeritz, Inari, Karex, Kossan, MISC, Oldtown, TdC, Top Glove, Unisem, ViTrox and WCT.

Negative –

• AirAsia, Astro, Axiata, DRB, IHH, Maxis, MBMR, Nestle, TCM, TM, TNB, and UMW.

Strategy

• Given the current subdued overall market, the only bright theme at this juncture that could excite investors would be the play on strong US$ beneficiaries.
• However, among the 15 stocks under HLIB universe that would benefit, some are countered by other fundamental issues that could hamper price performance.
• For thematic play on the strong US$, we prefer Evergreen, Eversendai, Homeritz, Inari, Oldtown, TdC and Unisem. These stocks are aided by the right fundamental ingredients that would still support share price performance even if the strong US$ theme play fizzle out.
• On the other hand, among 12 stocks under HLIB universe that would be negatively impacted, investors with longer term horizon should keep a watchful eye on AirAsia, Axiata and TNB as the current subdued sentiment present opportunity for long-term exposure at more palatable levels.

Source: Hong Leong Investment Bank Research - 9 Jun 2015