Published on 13 Nov 2019.
RAM Ratings has published CreditPulse 2019/2020, which presents our views on the economic outlook for Malaysia as well as the outlook and credit trends for 10 selected sectors.
This year has been a challenging one to date for most industries and corporates that operate within them. Decelerating economic growth, weak commodity prices and highly uncertain global trade conditions brought about by the protracted US-China trade spat have been exerting pressure on the operating and financial performances of corporates in Malaysia. In addition, the Pakatan Harapan administration, mid-way through its second year in power, has set fresh policies for certain regulated industries. Affected players will need to adapt to the new regulatory environment. “Despite these challenges, the outlook on most of the sectors under RAM’s coverage remains stable. Only two have been kept on negative outlook,” highlights Thong Mun Wai, head of Corporate Ratings.
“Malaysia’s GDP growth is projected to come in at 4.5% for 2020, a tad lower than the 4.6% expected this year. Once again, domestic demand will be the key anchor of growth as external demand continues to wane. The use of growth-supportive policies next year will be of utmost importance towards facilitating domestic demand as the main catalyst of economic expansion,” explains Head of Research Kristina Fong.
Notably, the outlook on the construction and oil & gas (O&G) support services sectors has been revised from negative to stable, premised on improving industry fundamentals. RAM placed the construction sector on negative outlook in 2018 due to the cancellation, deferral and review of mega infrastructure projects after the 14th General Election (GE14). While construction activity is expected to remain lacklustre through the rest of 2019, we anticipate it to pick up next year once revived infrastructure projects such as the RM44 bil East Coast Rail Link (ECRL) gains traction. Meanwhile, the prospects of the O&G support services sector have been looking up as Petronas ramps up its capex.
Only the automotive and commercial property sectors remain on negative outlook. RAM expects competition in the automotive sector to intensify amid a saturated market and uncertain policy direction. This is compounded by the anticipated weakening of the ringgit, which will erode margins even further. For the commercial property sector, the glut of office and retail mall space is unlikely to ease anytime soon as supply is still envisaged to outpace demand in the medium term.
The credit trends of RAM-rated issuers in the selected sectors are stable. The issuers in our rating portfolio predominantly fall into the AA category and possess features that insulate them against sectoral challenges, i.e. dominant market positions, strong earnings visibility, business diversification and/or sturdy financial profiles.
Thong Mun Wai
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