KUALA LUMPUR, Dec 31 — Bursa Malaysia wrapped up its 2019 trading, albeit, with a less cheerful ending, having had to navigate through external headwinds, geopolitical uncertainty, less impressive corporate earnings and foreign fund outflows.
The risks faced by the local market throughout the year included the increased protectionism practices by advanced economies amidst the unresolved US-China trade war, the European Union’s ambitious push against climate change, as well as the increased practice of expansionary monetary policy on the global front.
Over the past year, the local stock market traded in a quite lacklustre fashion, hovering between 1,548.45 and 1,732.27.
On the last trading day of 2019, the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) finished at its intraday low of 1,588.76, down 101.82 points or 6.02 per cent, from 1,690.58 recorded on Dec 31, 2018.
The decline was mainly dragged by the year-end profit-taking, as well as tracking the downtrend on regional market performance due to the overnight weakness on Wall Street.
Commenting on the full-year performance, RHB Investment Bank Bhd regional equity research head Alexander Chia said it had all to do with corporate earnings’ growth and valuations, wherein corporate earnings have been dismal in recent years.
“For the 30 FBM KLCI component stocks, we projected a 6.3 per cent earnings per share contraction for the whole of 2019 before moving to a 4.4 per cent growth in 2020, while forward market price-to-earnings ratio stands at about 17 times.
“However, the 2020 estimate carries downside risks given that we are moving into a slower growth environment globally and domestically,” he said.
Chia also said that the ringgit, which lacked a strong consensus view for the currency to strengthen, was also a dampener for foreign funds and made them remain resolutely underweight on Malaysian equities.
“This reflects structural macroeconomic issues which will take time to resolve, in addition to the FTSE Russell’s decision to keep Malaysia on the watch list for continued inclusion in the World Government Bond Index until the next review in March 2020,” he told Bernama.
In the weekly fund flow report, MIDF Amanah Investment Bank Bhd Research (MIDF Research) analyst Adam M Rahim said he expected 2019 to be another year of foreign net outflow for Malaysia as the local equity market continued to register a year-to-date foreign net outflow of RM10.99 billion as at Dec 27.
“(However, it should be) lower than last year’s total foreign net outflow of RM11.69 billion,” he said.
Listings on Bursa Malaysia
Bursa Malaysia saw 30 new initial public offering (IPO) listings this year compared with 22 in 2018, the highest number since 2006 despite the challenging market environment.
Of the 30 new listings, four were on the Main Market versus two in 2018, eleven on the Ace Market (nine in 2018) and 15 on the LEAP Market (11 in 2018).
On the exchange-traded funds (ETFs), Bursa Malaysia said there were six new ETFs listed on the local bourse in 2019, bringing the total listed ETFs to 16, up from 10 last year.
The six new ETFs comprised four inaugural leverage and inverse (L&I) ETFs and two conventional ETFs.
Highlight: Media sector
It seems that 2019 did not quite favour the media sector, whereby many local media companies saw their revenue dwindle in the absence of new earnings catalysts.
MIDF Research attributed the primary causes for this phenomenon to the protracted unfavourable advertising expenditure environment and the shifting of the media industry structure from traditional platforms to the highly competitive digital media space.
To recap, the research house said Utusan Melayu (M) Bhd was stripped off its listing status on Aug 30, while Berjaya Media Bhd, which slipped into Practice Note 17 (PN17) status in June 2017, saw the trading of its shares suspended on Nov 5.
Star Media Group Bhd’s pre-tax profit for its core print and digital business segment also fell by 69.2 per cent year-on-year to RM6.5 million for the first nine months of its financial year ended Sept 30, 2019 (9M FY19), it said.
“Meanwhile, the largest media company — Media Prima Bhd — remained in a loss-making financial position for 9MFY19, and it is also looking to reduce one-third of its current workforce by the first quarter of 2020,” it added.
A news report in November said Media Prima, the operator of four free-to-air television (TV) stations and three newspaper publications, would lay off 543 employees, or over 40 per cent of its workforce in March 2020 as a “manpower rationalisation exercise”.
Due to the weakening consumer and business sentiments, MIDF Research expected the traditional segments, namely TV, radio and publishing that form the majority of the revenue to possibly continue to suffer heavy losses as advertisers turn to digital platforms which are more effective and cost-efficient.
As such, the research house maintained its “negative” recommendation on the media sector.
Khazanah/GLC asset sales
Khazanah Nasional Bhd had frequently grabbed headlines over the past year due to the disposal of a slew of assets, with the aim to pare down its debt to as low as RM35 billion from the current RM47 billion.
In October, Economic Affairs Minister Datuk Seri Mohamed Azmin Ali told the Dewan Rakyat that the national sovereign wealth fund had sold assets amounting to RM18.8 billion between May 2018 and June this year, including the divestment of a 16 per cent stake in IHH Healthcare Bhd to Japan’s Mitsui & Co Ltd for RM8.42 billion in November 2018.
A month later, in November, the minister told Parliament that RM5.66 billion of assets in seven foreign firms, including China’s e-commerce giant Alibaba Group Holding Ltd, had been sold by Khazanah.
Commenting on the exercise, Chia said that typically, government-linked companies (GLCs) have professionals on their boards and management and this has been more apparent since the 14th General Election on May 9, 2018.
“Government-linked investment companies (GLICs) like Khazanah will continue to rebalance their investment portfolios as it deemed appropriate for re-allocation into new opportunities.
“This is normal in investment portfolio management,” he said, adding that the upside to any GLIC stake selldown in GLCs was that the move would add to the free float factor for Malaysian corporates in global benchmark indices.
To recap, in April 2019, Khazanah sold 85 million shares in Tenaga Nasional Bhd (TNB) at RM12.33 each (totalling about RM1.05 billion), resulting in the fall in the latter’s share price to its lowest level since October 2015.
In July 2019, Khazanah, via its 60 per cent-owned subsidiary M+S Pte Ltd, disposed of its entire stake in Ophir-Rochor Commercial Pte Ltd to Allianz Real Estate and real estate private equity firm Gaw Capital Partners for about RM4.734 billion.
Other assets sold by Khazanah in 2019 included the sale of its 100 per cent stake in Prince Court Medical Centre to IHH for RM1.02 billion, and the sale of its 40 per cent stake in Malaysian Shoaiba Consortium Sdn Bhd to Malakoff Corp Bhd for about RM288.08 million.
Although sales of the assets above have been finalised, the fate of Khazanah’s 51 per cent stake in PLUS Malaysia Bhd, the largest highway concessionaire in the country, remained uncertain as Prime Minister Tun Dr Mahathir Mohamad was quoted as saying the federal government would entertain offers deemed suitable to acquire PLUS.
Apart from PLUS, there are also calls from industry players for the sale of Khazanah’s wholly-owned loss-making Malaysia Airlines Bhd (MAB), of which the Prime Minister also once said the government was willing to sell MAB to bidders with good offers and who were able to manage the company well.
Meanwhile, UEM Sunrise Bhd, in which Khazanah owns an indirect 66 per cent stake, had proposed to sell its Mayfair property asset in Melbourne for about RM304.13 million in November.
As for other GLCs, Boustead Plantations Bhd had, in April, said it was considering to sell plots of land worth up to RM1.2 billion over the next three years to reduce its gearing level to 0.2 times from around 0.5 times at present.
DRB-Hicom Bhd had entered into an agreement with Japan’s Kawasaki Heavy Industries Ltd to sell an 11 per cent stake in Motosikal dan Enjin Nasional Sdn Bhd (Modenas) for RM40.3 million.
Despite the selling spree seen last year, Chia said, earnings performance of the GLCs which are components of the FBM KLCI had been respectable, and even outperformed their non-GLC peers.
“However, based on our calculations, the GLCs’ return on equity has slipped to eight per cent in 2019 from 8.9 per cent in the previous year,” he added.
Merger and acquisition (M&A) activity falls
M&A deal value in Malaysia experienced a broad decline in 2019, with M&A, private equity/venture capital and IPO valued at US$10.7 billion compared with deal value of US$12.5 billion in 2018.
Notable M&A deals for Malaysia included the acquisition of Murphy Oil Corporation’s Malaysia oil and gas (O&G) assets for US$2.1 billion by Thailand’s largest O&G explorer PTT Exploration and Production PCL, according to global valuation and advisory firm Duff & Phelps.
Its managing director, Srividya Gopal, said that in spite of the decline in deal values this year from the historic highs in 2017 and 2018, the firm continued to see healthy levels of transaction activity in the region, led by the technology sector.
In contrast to the decline in M&A activity, privatisations or plans to go private by companies have been on the rise over the past year.
These included RHB Bank Bhd’s plan in August to dispose of its 94.7 per cent stake in its general insurance arm, RHB Insurance Bhd, to Tokio Marine Asia Pte Ltd.
However, the deal was called off in December as both parties failed to reach an agreement on mutually acceptable terms and conditions for the proposed disposal.
According to Chia, market weakness and low stock prices had tempted investors to consider the privatisation route, especially when market prices do not reflect the value of underlying assets.
Despite the continuing challenging environment, moving forward, MIDF Research expects the FBM KLCI to touch 1,680 points by end-2020, supported by corporate earnings recovery in general by about 5.0 per cent in 2020 compared with 1.0 per cent this year, which would support market sentiment.
Nomura Research head of Malaysia equity research Tushar Mohata, meanwhile, said the company had reduced its end-2019/2020 FBM KLCI target to 1,600/1,680 from 1,630/1,710 previously.
“For Malaysia, we believe the two potential upside catalysts to watch are the continuing spillover benefits from the US-China trade tensions, and a recovery in manufacturing investments.
“Also, a return of banks’ loan growth can be a positive catalyst for the market too,” he added. — Bernama
