Author: kltrader | Publish date: Tue, 14 Jul 2015, 11:12 AM
Highlights
- There are increasing signs that the Chinese economy has lost further momentum despite series of aggressive policy responses. From the macro perspective, we now rank China slowdown as the main downside risk to our GDP growth forecast.
- In this regard, we believe that it is worthwhile to monitor the developments in China given that besides the potential impact on the economy, there could be direct implications to sectors and/or companies under HLIB coverage universe.
- This report is to highlight the sectors and/or companies that have exposure in China as part of our role as a conduit to facilitate the goal of informed investment.
Comment
- From Figure 4 (on page two), various companies and/or sectors have exposure to China via revenue and profit as well as via centers, GDV, export, outlets, passenger, patronage and throughput which will also translate into financial performance.
- The percentage exposure varies but most, if not all, do not exceed 20% while some are less than 10%. The only exception is Sime Darby whereby China accounted for 24.2% of total revenue in FY06/14. However, at the EBIT level, China contribution was reduced to 10.4%.
- The degree of impact could also varied, depending on type of business (i.e. defensive or cyclical), price competitiveness (weaker MYR), availability of substitution, ticket item (big vs. small) as well as ability of management to maneuver their strategy to minimize the impact.
- Despite the various exposures, we are not pressing the alarm bell yet and are maintaining our assumptions and forecasts of these companies and/or sectors given that we expect the Chinese government to introduce more stimulus measures to sustain and stabilize economic growth. Moreover, notwithstanding the expected slowdown, we are still projecting China GDP growth of 6.8% (vs. 7% in our previous forecast).
- Moreover, any potential adverse impact would be partly offset by the appreciation of Rmb against MYR (for those companies with Rmb revenue). YTD, Rmb has appreciated by 8.7% vs. MYR.
- Thus, the 0.2-ppt reduction in economic growth projection is unlikely to result in significant financial impact to these companies and/or sectors.
- We will continue to monitor the developments in China and will not jump to conclusion (to significantly change the forecasts of these companies and/or sectors and subsequently result in potential change in ratings) unless we see signs of risks that the China economy will disappoint or undershoot significantly from our projection.
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