Corporate Malaysia still vibrant despite curtailed recovery
23 Dec 2021
The Covid-19 pandemic has affected Malaysia’s corporate sector disproportionately, causing many to reinvent and navigate through the changing winds of business conditions locally and globally.
Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said those in the healthcare and technology-related industries prospered, thanks to the pent-up demand thus leading to higher profitability.
However, other companies were generally disrupted following the restriction on human mobility which negatively affected the revenue stream as well as the rising operational cost as businesses need to adhere to Covid-19 standard operating procedures (SOPs).
“Nevertheless, the relaxation of movement restriction early October following the lifting of the interstate travel ban has helped to accelerate economic activities,” he told Bernama.
Last quarter drives recovery
MIDF Amanah Investment Bank Bhd’s head of research Imran Yassin Md Yusof recently said the awaited V-shaped economic recovery in 2021 was curtailed by the Covid-19 Delta variant, which necessitated the reimposition of nationwide lockdowns.
Despite buoyant corporate earnings expectations during the earlier part of this year, earnings prospect and visibility were later tampered with and clouded by macro downside risk related to pandemic-induced lockdowns, he said.
Meanwhile, Mohd Afzanizam said the Purchasing Managers Index – a composite single-figure indicator of manufacturing performance – has continued to hover more than the 50-point yardstick for two consecutive months, October and November, citing “in that sense, profitability should be better in the fourth quarter of 2021”.
According to data firm IHS Markit, Malaysian manufacturers noted improved operating conditions for the second successive month in November.
Both production levels and new orders expanded further, with the former increasing at its fastest pace in seven months.
“As demand improved, firms noted that pressure on capacity also intensified, which led to employment levels returning to expansion territory, albeit only marginally, for the first time since March.
“Manufacturers noted sustained optimism about the year-ahead outlook, with hopes that the end of the pandemic would boost demand further pushing confidence to the highest since April,” IHS Markit said in its latest report.
It also said based on the latest reading in November, industrial production improved during the fourth quarter and is likely to contribute positively to economic growth at the end of 2021.
New listings on stock exchange
Despite pandemic challenges, Bursa Malaysia saw 28 new initial public offering (IPO) listings this year compared with 19 in 2020.
Of the 28 new listings, five were on the Main Market versus two in 2020, while 11 were on the Ace Market (10 in 2020) and 12 were on the LEAP Market (seven in 2020). Among the companies were CTOS Digital Bhd, Aurelius Technologies Bhd, Steel Hawk Bhd, and Swift Haulage Bhd.
CTOS was the largest IPO this year with a market capitalisation of RM2.4 billion.
Southeast Asia’s biggest ride-hailing and delivery firm Grab Holdings Ltd, with the ticker “GRAB”, had on Dec 2 debuted on the NASDAQ stock exchange after a record US$40 billion (RM169 billion) merger deal with United States-based company Altimeter Capital Management’s special purpose acquisition company, Altimeter Growth Corp.
The former Malaysia-born start-up’s listing on NASDAQ was indeed a moment of immense pride for technology companies in this region and would serve as an inspiration for Malaysia’s thriving and vibrant startup and scale-up industry.
Grab shares traded between US$8.13 and US$13.29 on their first day of trading. The counter closed unchanged at US$8.75, down 20.5 per cent, with 35.71 million shares changing hands.
Vibrant M&A despite pandemic
According to Ernst & Young PLT strategy and transaction leader Preman Menon, the pandemic has accelerated the need for Malaysian businesses to review and realign their strategy as well as formulate their transformation journeys to ensure a sustainable future post-pandemic.
It was reported that mergers and acquisitions (M&A) in Southeast Asia saw 482 deals valued at US$85.2 billion (RM359.6 billion) announced in the first half of this year, 141 per cent higher than the US$35.35 billion generated in the same period last year with a total of 406 deals.
In Malaysia, several notable M&A seen this year include Kuala Lumpur Kepong Bhd’s acquisition of IJM Plantations Bhd from IJM Corp Bhd, Hibiscus Petroleum Bhd’s acquisition of Spanish oil major Repsol Exploracion S.A’s upstream assets in Malaysia and Vietnam, Loob Holdings Sdn Bhd’s 30 per cent acquisition stake by private equity firm Creador and Seaport Terminal (Johore) Sdn Bhd’s privatisation offer for MMC Corp Bhd.
The corporate sector also saw the failed attempt by the Federal Land Development Authority (Felda) to take FGV Holdings Bhd private in March, as the unattractive RM1.30 offer price failed to match the minority shareholders ‘appetite’ thus leaving the group with stake ownership of 81 per cent.
Nonetheless, FGV still faces the risk of being delisted from the stock exchange in 2022, given its narrowing public shareholding spread which stood at 13.19 per cent as at Nov 25, way below Bursa Malaysia’s listing rules that require 25 per cent public spread of a listed company.
On other development, telecommunications giant Axiata Group Bhd and Telenor Asia, the major shareholder of Digi.Com Bhd, had in June inked an agreement to signify confirmation of their intent to establish a commercially stronger and more resilient digital converged service provider to drive Malaysia’s digital ambitions via MergeCo, a merged company between Celcom Axiata Bhd and Digi.
The proposed merger, which is expected to be completed in the second quarter of 2022, will be the clear number one cellular company in Malaysia with 19.1 million subscribers and a mobile service revenue market share of 52 per cent.
The Audit Saga
The dispute involving Serba Dinamik Holdings Bhd versus two audit firms, KMPG Plt and Ernst & Young Consulting Sdn Bhd (EY), as well as Bursa Malaysia raised serious governance concerns in the country.
Serba Dinamik’s former external auditor, KPMG, red-flagged discrepancies involving transactions to the tune of RM4.54 billion in the former’s draft annual report for the year ended Dec 31, 2020, which led to legal tussles thereafter.
Bursa Malaysia imposed a trading suspension on Serba Dinamik since 2.30 pm on Oct 22 after it failed to disclose the findings of a special independent review undertaken by EY, which has been appointed in July as the group’s independent reviewer to assess the veracity of the audit issues raised by KPMG.
The group’s share price was last traded at 35 sen, giving a market capitalisation of RM1.3 billion.
Serba Dinamik had in early-November filed originating summons separately against Bursa Malaysia and EY, which the oil and gas engineering firm claimed the stock market regulator acted in excess of its power and its directives as well as the trading suspension are null and void and of no effect.
However, Bursa Malaysia had on Nov 23 initiated a new legal action to compel the group to disclose updates on the special independent review factual findings as it failed to meet the Oct 26 deadline.
The ongoing tussle has cost Serba Dinamik a credit rating downgrade by Fitch Ratings, Malaysian Rating Corp Bhd and S&P Global Ratings. The company also triggered the Practice Note 17 criteria on Dec 9 but was saved from being classified under the criteria due to Bursa Malaysia’s Covid-19 pandemic relief measures.
Moving into 2022
The corporate sector is expected to be better next year, however, the pace of recovery would hinge upon the extent of the reopening of the economy, said Mohd Afzanizam.
He said players in the rubber gloves sector have been relentlessly upgrading their production facility by incurring additional capital expenditure in order to ensure that they are able to meet the growing demand for gloves.
“Such strategic decisions will pay off at some point in the future as they are able to convince their clients that they are able to meet the demand irrespective of the economic condition while at the same time, keeping their operational cost at bay by automating the production processes that will make them more agile.
“Such traits can also be found in other industries as they need to constantly rethink their business strategy in the face of economic uncertainties,” he said, adding that a good example would be the banking sector as they are expected to face fierce competition from non-traditional players.
Mohd Afzanizam said following this, most banks have embarked on their digitalisation journey that can offer a better experience and create value for their customers.
This, in turn, would help them to improve their profitability and deliver good results to their shareholders, he explained.
Additionally, Mohd Afzanizam believes that sectors such as aviation will continue to remain guarded as the industry is highly susceptible to Covid-19, given that lockdown measures would be adopted almost immediately in many jurisdictions upon the discovery of a new variant.
However, Imran Yassin said the healthcare and plantation companies are projected to register negative earnings growth in the next financial year principally due to weakening average selling price and the expectation of lower crude palm oil prices, respectively.
He added that financial services, transport and logistics, and consumer product and services are expected to contribute the largest quantum of incremental earnings next year, while the transport and logistics, construction, and consumer product and services (P&S) sectors would generate the highest growth percentages.