The Malaysian GE14 (Part 2) – Stocks Impacted by Leadership Change

equities ge14 malaysia stocks Jun 11, 2018

by: Tam Ging Wien

Edited by Dean Goh for ProButterfly.

All examples and stocks quoted here in this article and on the ProButterflyTM site are for learning purposes; it does NOT constitute financial advice or a Buy/Sell recommendation. Contents are reflective of personal views and readers are responsible for their own investments and are advised to perform their own independent due diligence and take into account their own financial situation. If in any doubt about the investment action you should take, you should consult a professional certified financial advisor.

The "Malaysian General Elections (GE14) – An Investors Perspective" series is intended to discuss and generate investment themes and ideas, but it should NOT be misconstrued or otherwise interpreted as financial advice.

In our previous articles in this series, we covered a summary of the major points of the new Pakatan Harapan government manifesto.

In summary, the Pakatan Harapan (PH) has campaigned with a very clear message of hope for the people of Malaysia in their manifesto entitled Rebuilding Our Nation Fulfilling Our Hopes. The manifesto sets out the following pledge:

  • Fulfil 10 promises within 100 days
  • Fulfil 60 promises across 5 major pillars within 5 years
  • Fulfil 5 special commitments to specific groups including the FELDA Settlers, The Indian Community, Women, Youths and Senior Citizens

The manifesto sets out the following promises that the new government intends to fulfil within the first 100 days of taking office:

  1. Abolish the GST and take steps to reduce cost of living.
  2. Stabilise the price of petrol and introduce targeted petrol subsidies.
  3. Abolish unnecessary debts that have been imposed on FELDA settlers.
  4. Introduce EPF contribution for housewives
  5. Equalise the minimum wage nationally and start the processes to increase the minimum wage.
  6. Postpone the repayment of PTPTN to all graduates whose salaries are below RM4,000 per month and abolish the blacklisting policy.
  7. Set up Royal Commissions of Inquiry on 1MDB, FELDA, MARA and Tabung Haji, and to reform the governance of these bodies.
  8. Set up a Special Cabinet Committee to properly enforce the Malaysia Agreement 1963.
  9. Introduce Skim Peduli Sihat with RM500 worth of funding for the B40 group for basic treatments in registered private clinics.
  10. Initiate a comprehensive review of all megaprojects that have been awarded to foreign countries.

In addition to the 10 promises within 100 days, there are also 5 major pillars of reforms that the PH government promises to achieve within the next 5 years:

  • Pillar 1: Reduce the People’s Burden
  • Pillar 2: Institutional and Political Reform
  • Pillar 3: Spur Sustainable and Equitable Economic Growth
  • Pillar 4: Return Sabah and Sarawak to the Status Accorded By the Malaysian Agreement 1963
  • Pillar 5: Create A Malaysia That is Inclusive, Moderate and Respected Globally

Taking the 10 promises and 5 key pillars at face value and assume that the new PH government will see through its promises and implement them in the most efficient and practical way.

We we 6 major (non-exhaustive) groups of stocks which will be impacted as a result of the implementation of the PH Manifesto:

  1. Leadership Change – Potential Impact on Businesses with Government Monopolies, Ownerships, Relationships and Favours
  2. Megaprojects Review – Potential Implications on Development and Construction related Stocks
  3. GST Removal – Potential Implications for Consumer Stocks
  4. Abolish Highway Tolls – Potential Implications on Toll Operators
  5. Reduction of Excise Duties on Imported Vehicles – Potential Implications on Vehicle Importers and Retailers
  6. Impact on the Ringgit – Potential Implications on Import and Export Driven Businesses

This week, we will cover stocks in Group 1 which could potentially be impact by the Leadership Change.

Leadership Change – Potential Impact on Businesses with Government Monopolies, Ownerships, Relationships and Favours

Clearly with this leadership change, stocks that were once beneficiaries of the BN’s policies may now fall out of favour owing to uncertainties around their future business performances. Here are our brief comments on a few businesses (non-exhaustive) that may be directly impacted by the leadership change:

  • Astro Malaysia Holdings Bhd (ASTRO): Astro is a Malaysian media and entertainment holding company that began as a paid digital satellite radio and television service. Astro was specifically singled out as having a monopoly on broadcasting in “Promise 2” of the PH manifesto.
  • Padiberas Nasional Bhd (BERNAS): Bernas was also singled out as a monopoly in rice production. Controlled by Malaysian businessman Tan Sri Syed Mokhtar Al-Bukhary, Bernas has since been delisted but may seek relisting again in the future.
  • Utusan Melayu Bhd (UTUSAN) & Star Media Group Bhd (STAR): Utusan Melayu and Star Media Group are involved in the publication, printing and distribution of newspapers and magazines in both print and digital formats. Utusan Melayu is controlled by UMNO while Star Media is controlled by MCA, both of which are BN component parties. Both are viewed as the BN’s mouthpiece. MCA’s investment arm, Huaren Holdings owns approximately 42% of Star media, while close to 50% of Utusan Melayu is owned by UMNO
  • My E.G. Services Bhd (MYEG): MyEG is an e-government service provider that began after receiving a contract from the Malaysian Road Transport Department to build an online portal and kiosks for vehicle owners to renew their road tax. It has gradually grown through government contracts granted and provides services such as driver’s license renewal, vehicle ownership transfers, foreign workers permit renewals, traffic summons payments, Malaysian NRIC (MyKad) replacements and Kuala Lumpur City Hall assessments and summons payments.
  • Datasonic Group Bhd (DSONIC): Datasonic Group is involved in the provision of ICT solutions including the smart card personalisation (such as secure ID or chip-based credit / debit / bank cards), customisation of software and hardware solutions, project management, consultancy, R&D and technical consultancy services. It is also the exclusive contractor of Dibena which has been involved in the government multi-purpose card (GMPC) national ID (MyKad, MyPR & MyKid) project since 1999.
  • Airasia Group Bhd (AIRASIA): Airasia operates its budget flights around Asia and is highly dependent on government approvals for its flight routes. Its founder and CEO Tony Fernandes publicly endorsed Najib during the election campaign by releasing videos in support of Najib’s government and painting a plane blue with Najib’s campaign slogan. After Najib’s loss, he publicly apologised, explaining that he buckled under pressure.
  • CIMB Group Holdings Bhd (CIMB): CIMB is a Malaysian bank with operations and investments across South East Asia. The present chairperson of CIMB’s board is Nazir Razak, the brother of the former prime minister Najib Razak.
  • Cahya Mata Sarawak Bhd (CMSB): CMSB is a conglomerate and the largest private company in Sarawak. CMSB started with the manufacturing and sale of cement, gradually expanding to logging, timber exports, plantations and maintenance of public roads. CMSB is controlled by Sarawak Chief Minister Abdul Taib Mahmud and is seen as having a close relationship with the Barisan National Government.
  • OPCOM Holdings Bhd (OPCOM): Opcom is a telecom infrastructure-related company that has its primary business in the manufacture of fiber optic cables and cable related products. The company was founded by Mukhriz Mahathir and Kwang Hua Chhoa in 1994; the former being the son of Dr Mahathir.
  • Thriven Global Bhd (THRIVEN): Thriven is a real estate company that engages in lifestyle property development, investments, hospitality and facilities management. The current chairperson of the board is Datuk Fakhri Yassin Bin Mahiaddin; the son of Muhyiddin Yassin, Malaysia’s ex- Deputy PM and current Home Affairs Minister.
  • Felda Global Ventures Holdings Bhd (FGV): FGV is a global agricultural and agri-commodities company dealing with a wide range of commodities such as oil palm, rubber, soybean, canolo, sugar and oleochemicals. It is the 3rd largest palm oil company in the world by acreage. It leases and manages these plantations for FELDA smallholders. FELDA (short for Federal Land Development Authority) was originally conceived and launched by the first PM of Malaysia Tunku Abdul Rahman to handle the resettlement of the rural poor. These citizens were relocated into newly developed areas; as smallholders of FELDA, they were given help to organise their farms and grow cash crops. In June 2012, under Najib’s leadership, FGV was floated on the market and raised $3.1 billion from its IPO as the 2nd largest IPO worldwide in that year. Many of the FELDA settlers were investors in this venture. FGV’s share price has languished since its IPO and has been trading in the range of RM1.30 to RM2.50 in recent years, a far cry from its IPO price of RM4.55 back in 2012. FGV also came under investigation by the Malaysian anti-corruption agency MACC, resulting in the suspension of its former CEO Zakaria Arshad and CFO Ahmad Tifli Mohd Talha along with other senior management.

We will be watching the political developments in Malaysia very closely over the coming weeks.

In our previous article on the Malaysian GE14, we discussed the results of the election and the immediate impact on the markets. Do catch this article if you haven't done so!

Be sure to follow us to learn more about the profile of Malaysian listed stocks!

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