KUALA LUMPUR: CGS International said a stronger ringgit will have a positive impact on corporate earnings, as about 85 per cent of companies it covers are linked to domestic demand, where import content and foreign currency debt exists.
CGS International expects a year-end exchange rate of RM4.40/USD for 2024 and RM4.20/USD for 2025.
"This clearly has implications on the earnings of several sectors and companies within our coverage universe with the lower exchange rate impacting US dollar revenues from as early as third quarter 2024 (3Q24) and US dollar costs from around the fourth quarter of 2024 (4Q24)," it said.
CGS International said the clear beneficiaries from ringgit appreciation are consumer staples and discretionary, as well as select plantation companies with manageable, if any, downstream exposure and other importers such as Sime Darby, Astro and YTL Cement.
On the other hand, the overall earnings impact to gloves, technology and petrochemicals, in particular, can be significant should the ringgit appreciation sustain as a large part of the revenue loss flows direct to the bottomline.
CGS International said larger groups with foreign businesses and projects could also see some volatility in earnings but it thinks the impact would be manageable as most operations are non-US based and transacting in Asian currencies.
"While those with foreign currency denominated debt could see sizeable revaluation gains and potentially some reduction in interest costs. Axiata, in particular, stands out with about RM14 billion worth of US dollar denominated debt," it said.
Companies like Genting, MISC and Yinson would have natural offsets as these high debt levels are mainly those sitting in overseas operations which would have a comparable level of foreign currency denominated assets.
"Although not covered above, we think foreign exchange profits and other flow activity for banks could increase due to heightened exchange rate movements providing further support to fee incomes which have already seen a pick-up, mainly from capital markets related incomes," it said.