KUALA LUMPUR: CIMB Equities Research sees the Overnight Policy Rate (OPR) hike as positive for banks, as the upward re-pricing of lending rates have historically been higher than the increase in deposit rates, leading to potential expansion in banks’ margins. Semiconductor players are also beneficiaries as they are in net cash.
CIMB Research observed that the KLCI rose when interest rates were cut, and fell when interest rates were raised during the 1997 to 2000 period.
In the O&G sector, one company will actually benefit from higher Malaysian interest rates. Petronas Dagangan has a net cash position of RM3.8bn, hence a 25bp hike in Malaysian interest rates could lift FY18F core earnings by 1%.
Most companies are not affected by changes in Malaysian interest rates, as their borrowings are largely US$-denominated.
About 55% of Bumi Armada's borrowings are floating-rate loans, and virtually all of the floating rate loans are denominated in US$; as such, it is largely unaffected by Bank Negara's rate increases.
More than half of Dialog's floating rate loans (which are a mix of ringgit and US$ loans) have been swapped to fixed rates, hence, the impact of any rise in interest rates is immaterial to its earnings.
UMW-OG's floating-rate borrowings are predominantly denominated in US$, hence are affected only by US$ rate increases.
Virtually all of Yinson's borrowings are in US$, and have been swapped to fixed rates, or were originally fixed-rate loans.
The company that will suffer most is Sapura Energy, as about 35% of its borrowings are denominated in ringgit and are on floating interest rates.
A 25bp hike in Malaysian borrowing rates may raise interest expense by RM15m. We forecast Sapura Energy to deliver a core net loss of RM223m in FY1/19F.
We estimate a 25bp hike in OPR rate to be negative for packaging companies that are highly geared like Daibochi and Tomypak and this could lead to a 2.53.0% net profit decline in their net profit.
Daibochi geared up for its new Myanmar JV while Tomypak geared up to partially finance the capex for the new factory.
The higher interest rates should benefit Thong Guan Industries slightly as it is in a net cash position.
We believe this will be negative for the property developers, as this will further dampen home buyers’ sentiment to purchase properties.
For instance, a 25bp increase in OPR will likely lead to a 20-30bp increase in a floating mortgage loan rate, causing the purchaser to pay an extra RM60-70 per month on a loan of RM500,000.
We believe there will be ‘knee-jerk’ reaction from buyers as they will need to fork out extra money in order to own a property.
Most of the developers are in a net cash position or only have minimal borrowings, hence we do not expect the OPR hike to impact their earnings. For developers with higher gearing level such as Eco World
Development and Eastern & Oriental, the direct impact on earnings is minimal as most of the borrowings are capitalised.