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Corporate sector on solid recovery in 2023, M&A gains momentum

Publish date: Wed, 29 Nov 2023, 01:37 PM

KUALA LUMPUR (Nov 29): The Malaysian corporate sector sustained its recovery momentum in 2023, a continuity from 2022, driven by a number of initiatives and efforts by the government to boost the economy.

The absence of the prosperity tax in Budget 2023, announced by the Prime Minister Datuk Seri Anwar Ibrahim in February, provided a huge relief for the corporate sector, according to Bursa Malaysia chairman Tan Sri Abdul Wahid Omar.

Early this year, he said that without prosperity tax being imposed, analysts have a consensus forecast earnings per share (EPS) growth rate of 20.1% for 2023, compared to a negative 1.3% for 2022.

Meanwhile, Rakuten Trade Sdn Bhd equity research vice-president Thong Pak Leng recently said Malaysia’s corporate earnings are set to continue recovering and registering further growth in the second half of 2023 (2H2023), backed by positive economic print projected for the period.

He said Malaysia’s economy is set to retain its growth trajectory for the rest of the year, with continuous support from strong household spending and intact fundamentals, despite various external variables influencing growth in 1H2023.

“Last year, earnings declined 10% and this year, we expect it to grow by 9.3%-9.5%.

“More companies are likely to write back provisions in 2H2023, and fundamentally, things are getting better with more active economic activities happening in the country,” he said.

Primary focus to expand in Asean

A recent survey by HSBC found out that Malaysia has become a primary focus for international businesses looking to expand their footprint in Asean, with one in four international firms planning to expand into the country over the next two years.

The HSBC Global Connections survey also found that 27% of businesses which already have operations in Malaysia, plan to prioritise growth over the same period, the banking group said in a statement on Wednesday.

“Malaysia’s skilled workforce, rising consumer prosperity and its network of free trade agreements are the primary attractions for international firms doing business in the market, with 28% respectively selecting these features of the market as making it attractive for business expansion,” it said.

HSBC Malaysia head of commercial banking Karel Doshi said Malaysia is leading the way in the Asean region and international businesses are increasingly optimistic about their growth prospects in Malaysia.

“For businesses, expanding their operations to Malaysia can unlock some incredible growth opportunities, but it does come with some challenges. Therefore, it is important to find an experienced partner with deep knowledge both on the international and local markets to help them overcome these challenges,” she said.

The statement said international connectivity remains a competitive advantage for the country and HSBC Malaysia continues to strengthen its position as the only international bank that offers a full suite of products and services to government, companies and retail customers, connecting them to international opportunities, and connecting international businesses to opportunities in Malaysia.

The top three attractions for Asean, HSBC said, are its skilled workforce (27%), growing digital economy (26%) and competitive wages (25%).

M&A gaining momentum

The local merger and acquisition (M&A) landscape is also gaining strong momentum this year, with more firms, particularly Japanese, stepping up investments in corporate Malaysia, as well as using Malaysia as a springboard to penetrate other Southeast Asian markets due to its strategic location and diverse economy.

Among notable M&A events happening this year is the acquisition of a 61.2% stake in UMW Holdings Bhd from Permodalan Nasional Bhd by Sime Darby Bhd for RM3.57 billion in cash, with the obejctive to further scale up and strengthen Sime Darby’s presence in the Malaysian automotive sector.

The exercise, one of the largest M&A deals in Malaysia, is expected to strategically transform Sime Darby into a leading automotive player in the country, with the addition of high-volume mass-market brands Toyota and Perodua, capturing up to 60% of the domestic automotive total industry volume.

Meanwhile, in a recent article, Nihon M&A Centre Malaysia managing director Yusuke Ojima said the country’s strategic location and well-established business infrastructure has made it an excellent base for venturing into neighbouring markets.

“Its diverse economy offers a wide array of potential industries for us to explore such as manufacturing, technology and consumer goods. We can also benefit from the Malaysian government’s support for foreign investment, as its incentives and policies aim to attract investors and facilitate smoother M&A processes,” he added.

He noted that the country has been a preferred destination for Japanese companies seeking to expand in Southeast Asia, making Nihon M&A Centre’s Japanese background well-suited to resonate with such firms looking for M&A opportunities in the region.

Overall, he said Malaysia’s M&A landscape within the region holds great promise for investors and advisory firms like Nihon M&A Centre Malaysia.

He said Malaysia’s position as a halal gateway is valuable for Japanese companies aiming to expand in the Southeast Asian and Middle East markets.

Business confidence increase

The latest statistics from the Department of Statistic Malaysia (DOSM) showed that the business confidence indicator increased by 3.2% in the fourth quarter of 2023 (4Q2023), up from 0.7% in 3Q2023, as businesses anticipate a better business situation in the fourth quarter.

Chief statistician Malaysia Datuk Seri Dr Mohd Uzir Mahidin said in a statement recently that services, industry and construction are the three sectors that anticipate better business conditions in the fourth quarter of 2023.

“The business confidence for the services sector remains on a positive trajectory, with the confidence indicator increasing to 6.3%, compared to 6.1% in the last quarter.

“Meanwhile, the industry sector continues to be optimistic about business performance with a confidence indicator of 4.0% for the corresponding quarter, compared to 1.3% in the third quarter of 2023,” he said.

Looking ahead, he said the business outlook for the period of October 2023 until March 2024 remains upbeat, despite a moderating economy, with a net balance of 9.8% against 13.9% recorded previously, with all sectors registering positively except the wholesale and retail trade.

“Sentiments in the services sector remain positive, with a net balance of 19%. For the next six months, all sub-sectors under the services sector anticipate a positive business environment. The industry sector also foresees a brighter business outlook with a net balance of 7.5% for the period of October 2023 until March 2024,” he said.

After soaring to a positive trajectory for the second half of 2023, he said the construction sector keeps improving significantly, with a net balance of 27.6% for the upcoming six months.

He said wholesale & retail trade expects a challenging business outlook for the following six months, with a net balance of −4.6%.

“This scenario is due to the pessimist sentiment from the wholesale trade sub-sector. Nevertheless, the retail trade subsector rebounded to a positive trajectory by recording 3.0% for the six months ahead, compared to −12.4% recorded previously,” he added.

Moving forward

Bursa Malaysia chief executive officer Datuk Muhamad Umar Swift said the recently unveiled Budget 2024, coupled with the ongoing policy initiatives under the Madani Economy framework - including the National Energy Transition Roadmap (NETR), New Industrial Master Plan 2030, as well as the Mid-Term Review of the 12th Malaysia Plan - are poised to set the direction and impetus for economic growth, which would involve part of the corporate sector.

“Looking ahead to 2024, the consensus among analysts suggests that earnings of companies on the FBM KLCI in 2024 is expected to be better, perhaps matching the higher levels recorded in 2022.

“This more optimistic earnings outlook is underpinned by the expectation that the global economy will perform better in 2024 than initially feared, and that the Malaysian economy is anticipated to grow by 4.0%-5.0%, notwithstanding the ongoing monetary policy tightening,” he told Bernama.

While there are concerns about a possible recession in the United States in the first half of the year, he said this viewpoint is not widely shared among economists.

“Recent policy shifts in China are likely to support and stabilise the large economy’s economic trajectory. Should this lead to an upswing in consumer confidence in China, the ripple effect could benefit our economy and corporates,” he said.

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