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Focus Malaysia
16-07-2025
- Business
- Focus Malaysia
Indonesia's palm oil clean-up sparks ESG concerns, investment caution
LAST week, Indonesia's forestry task force transferred approximately 400,000 ha (988,000 acres) of seized palm oil plantations to a state-owned company, Agrinas Palm Nusantara, as they were allegedly operating illegally in designated forest areas. 'Based on our channel checks, several local plantation companies have surrendered a small portion of their plantation land to the Indonesian authorities. We understand that the impact on their earnings is largely muted,' said Public Investment Bank. However, this development raises regulatory risks for industry players with significant exposure in Indonesia, which could weigh on their valuations over the long term. Meanwhile, the recent surge in CPO prices to over RM4,200/mt may reignite investor interest in plantation counters. We maintain our Neutral outlook with a full-year CPO price forecast of RM4,200/mt. Last week, a total of 394,547 ha of plantation land—spread across Central Kalimantan, Riau, and North and South Sumatra and controlled by 232 companies—was confiscated and handed over to Agrinas, a state-owned company established in early 2025 under the administration of President Prabowo Subianto. The operations were jointly led by the Ministry of Environment and Forestry, Ministry of Defense and Attorney General's Office. The task force is aiming to take over a total of 3m ha of illegally-run plantations in forest area by Aug. With this addition, the total plantation area under the Agrinas Group now stands at 833,000 ha, making the company as one of the largest plantation companies in the world. Based on our checks, several local companies have surrendered plantation land to the Indonesian authorities, ranging from 1,000ha to 6,000ha, some of which are in unproductive condition. We understand that the earnings impact for these companies is relatively muted. However, in our view, this may pose a long-term ESG risk. Given the recent land seizures, we do not rule out the possibility that some plantation companies may exit or scale down their operations in Indonesia over the longer term, due to rising regulatory risks. Investment in replanting activities is also expected to be more cautious, as it may compromise the companies' interests. We are also concerned that the military-led enforcement in plantation could exacerbate the declining trend in Indonesian palm production as we are doubtful over the state's ability to manage these plantations effectively. Based on our rough forecast, if 50% of the entire seized 833,000ha plantation remains unproductive, the annual palm oil production could decline by about 4% or 1.7m mt. —July 16, 2025 Main image: What is palm oil?
Focus Malaysia
15-07-2025
- Business
- Focus Malaysia
MITI tightens controls amid US pressure over AI chip flow
MALAYSIA will now require trade permits for the exports of high-performance US-origin artificial intelligence (AI) chips, which we perceive it to be part of the government's aim to curb potential transhipment of these chips. The move follows growing pressure from the US, which has effectively banned the sale of advanced AI chips to China since 2022. 'In our view, the new restriction may help close regulatory loopholes and prevent stricter legal action from the US government, which is considering new export restrictions on AI chips to Malaysia and Thailand,' said Public Investment Bank. We maintain our Overweight rating on the sector, with Cloudpoint Tech and MI Technovation as our top picks. Malaysia's Ministry of Investment, Trade and Industry announced that, effective immediately, any export, transhipment, or transit of high-performance US-origin AI chips will now require a government-issued trade permit. The Ministry further emphasised that companies must notify the authorities at least 30 days in advance before the exporting or shipping of such items. Additionally, companies must inform the authorities if they know or have reasonable grounds to suspect that the items will be misused or involved in illicit trading activities. It is worth noting that Malaysia exported USD16.2bn worth of chips to the US in 2024, making up nearly 20% of all US semiconductor imports. Generally, Malaysia does not fabricate these AI chips but these chips usually enter Malaysia for testing, packaging, assembling and re-exported as part of the sub-systems like AI servers or AI hardware. In our view, the enforcement of trade permits demonstrates Malaysia's firm stance against attempts to circumvent export controls or engage in illicit trade. This could ease the US concerns about the possible diversion of AI chips through intermediaries in Malaysia. Furthermore, it may reduce the risk of a US-imposed AI chip export ban on Malaysia and Thailand. However, it could increase compliance burden on companies handling US-origin AI chips as well as the risk of delays. Following this latest initiative, we believe there is a low risk of a US chip export restriction being imposed on Malaysia, which is positioned to become a data centre hub in Southeast Asia. Our channel checks indicate that five multi-billion-ringgit data centre contract tenders from a US-based hyperscaler are expected to be launched in the coming months. —July 15, 2025 Main image: RTE
Focus Malaysia
25-06-2025
- Business
- Focus Malaysia
Core inflation eases to 1.8%, signalling contained demand pressures
MALAYSIA's headline CPI eased to +1.2% YoY in May (April: +1.4% YoY), falling below market expectations. Core inflation also moderated to +1.8% YoY (April: +2.0% YoY), indicating that underlying demand-side pressures remain largely contained. For the first five months of 2025, headline inflation averaged +1.4% YoY, down from +1.8% YoY in the same period of 2024, underscoring continued disinflationary momentum. The increase in the national minimum wage to RM1,700 per month (from RM1,500), effective 1 February 2025 for firms with five or more employees, has thus far exhibited minimal pass-through to consumer prices. On a monthly basis, CPI rose by +0.1% MoM in May, unchanged from April. 'We have lowered our 2025 headline inflation forecast to +1.9% YoY (from +2.4% YoY), following a reassessment of inflationary pressures in light of the government's narrower RON95 fuel subsidy rationalisation,' said Public Investment Bank (PIB). The revision reflects lower expected passthrough from fuel to headline CPI, while core inflation remains contained across most demand-driven components. 'We continue to monitor potential upside risks from Tenaga Nasional's non-domestic tariff adjustments effective July, though the impact on CPI should be limited given protections for residential users,' said PIB. Other factors to watch include the SST base expansion from July, phased foreign worker levy reforms, and the deferred EPF contribution hike in 4Q25. On balance, we expect the cumulative inflationary impact of these measures to remain modest, anchored by broadly stable domestic cost conditions. Headline inflation increased slower to +1.2% YoY in May. May's CPI was primarily driven by price increases in Personal Care, Social Protection & Miscellaneous Goods & Services, which rose by +3.7% YoY (April: +4.1%), followed by Education at +2.2% YoY (April: +2.3%), Food & Beverages at +2.1% YoY (April: +2.3%), and Housing, Water, Electricity, Gas & Other Fuels at +1.7% YoY (April: +2.0%). Price growth also moderated in Recreation, Sport & Culture to +0.9% YoY (April: +1.3%) and in Alcoholic Beverages & Tobacco to +0.6% YoY (April: +0.8%). In contrast, Restaurant & Accommodation Services accelerated to +3.0% YoY (April: +2.9%), alongside Health at +1.1% YoY (April: +0.9%) and Furnishings, Household Equipment & Routine Household Maintenance at +0.2% YoY (April: +0.1%). Insurance & Financial Services (+1.5% YoY) and Transport (+0.7% YoY) remained unchanged from the previous month. Meanwhile, Information & Communication and Clothing & Footwear continued to register deflation, with prices falling by -5.2% YoY and -0.2% YoY respectively. Core inflation, which excludes price-controlled and fresh food items, moderated to +1.8% YoY in May (April: +2.0% YoY), indicating that underlying demand-driven price pressures remain contained. Excluding fuel-related components such as RON95, RON97 and diesel, the adjusted headline CPI also eased to +1.4% YoY (April: +1.5% YoY). In May, most states recorded inflation rates below the national average of +1.2% YoY, with Kelantan registering the lowest increase at +0.3% YoY. In contrast, five states posted inflation rates above the national average, led by Johor at +1.8% YoY, followed by Negeri Sembilan (+1.6% YoY), Selangor (+1.5% YoY), Melaka (+1.5% YoY) and Wilayah Persekutuan Kuala Lumpur (+1.4% YoY). —June 25, 2025 Main image: Compare Hero
Focus Malaysia
23-06-2025
- Business
- Focus Malaysia
Global markets on edge as conflict risks push oil prices higher
THE US strikes on Iran's nuclear facilities over the weekend has marked its direct involvement in the Israel-Iran war, which we fear could escalate an already volatile situation in the Middle East. If this conflict is prolonged, it could further destabilise the fragile market sentiment, which has been weighed down by weak economic conditions. In the short-term, the uncertainty could prop up oil prices, exacerbating inflationary pressure and sending bond yield higher, especially in the developed countries – US, Europe, Japan. Iran's parliament has now voted to close the Strait of Hormuz, where c.30% of global seaborne oil trade flows through the chokepoint. 'We believe the market will remain in a cycle of risk aversion with investors shying away from risky assets, until peace and stability prevail,' said Public Investment Bank (PIB). Although global market has regained losses since the announcement of a 90-day tariff pause in April, this trend could reset. We maintain our bearish outlook, favouring defensive stocks that predominantly focusing on the domestic market i.e. Maybank, Telekom, TNB, CCK and IGB Comm REIT. While we have a neutral call on the oil and gas sector, we believe there is upside risk in the immediate term, we have Outperform rating on Hibiscus and Bumi Armada. Since the start of the Israel-Iran conflict on 13 June, the US has largely refrained direct engagement in the war with its Secretary of State Marco Rubio stressing Israel has acted unilaterally while President Donald Trump announcing, just last week, that he will decide whether or not the US gets involved within the next two weeks. However, within days, the US has changed the course of the conflict, launching strikes on three Iranian nuclear facilities on 21 June. Promising to be a 'peacemaker' in his run up to return to the White House, Trump has taken a dramatic step by bringing US directly into the conflict. Should this escalate into a protracted conflict, it could strain the US' fiscal deficit even further, which is projected at about 6.2% of GDP in 2025. This should also increase its swelling debt, which stood at about 123% of GDP. Note that US artillery stockpiles are depleting quickly due to increased demand while the urgency to replenish may be constrained by limited rare earth supplies from China. The US military industrial base is already facing challenges in ramping up production to meet increasing demand from Ukraine and Gaza. Although Trump claimed the Iranian nuclear facilities had been destroyed by the US bunker-blaster, the extent of damage to the underground enrichment plants remains unclear, especially Fordow which is believed to be buried at a depth of 80-90m with mountain above ground. Iran could retaliate by closing the Strait of Hormuz or launching attacks on the US military base. The US operates a broad network of military sites, both permanent and temporary, across approximately 19 locations in the Middle East. The uncertainty in the Middle East is likely to cause a spike in oil prices as the region contributes to 30% of the world's total output, with Iran being the third-largest OPEC producer. If there is no material disruption to global supply of oil with the Strait of Hormuz remains accessible (the final decision now lies with Iran's national security council after the parliament voted to close the critical oil trade route), this may well be short-lived, as there is still ample supply of oil in the market while global demand could weaken due to slowdown in international trade following the increase in tariffs. Nonetheless, given the uncertainty and risk of escalation, oil prices are likely to surge in the immediate term while investors would rush to safe-haven assets (likely to be gold or JPY instead of USD or Treasuries) and avoid risky investments such as equities. US CPI remains under control partly due to low energy prices but a protracted conflict in the Middle East could potentially lead to a sustainable rise in energy prices, increasing the likelihood of the US economy slipping into a stagflation in 2H 2025. —June 23, 2025 Main image: Maukerja
New Straits Times
16-06-2025
- Business
- New Straits Times
PublicInvest: OPR cut likely in Q3, REITs outlook Neutral
KUALA LUMPUR: Public Investment Bank (PublicInvest) has revised its base case to include a 25 basis point cut in the Overnight Policy Rate (OPR) in the third quarter of 2025, subject to the continuation of reciprocal tariff suspensions and broadly stable domestic conditions. Although Bank Negara Malaysia (BNM) kept the OPR unchanged at 3.00 per cent in its recent monetary policy meeting, the central bank adopted a more accommodative stance by lowering the Statutory Reserve Requirement (SRR) from 2 per cent to 1 per cent, effective May 16. This move is expected to release about RM19 billion into the banking system to support economic growth amid rising external uncertainties, particularly ongoing trade tensions linked to US President Donald Trump's tariff policies. According to PublicInvest, the central bank's May policy statement cited several downside risks, including a sharper slowdown in key export markets, weaker consumer and business sentiment, and softening commodity output. The firm noted that the inclusion of "weaker sentiment" may indicate the early stages of a slowdown in private consumption and investment. While the OPR remains unchanged for now, PublicInvest said the SRR cut represents a proactive measure to ease liquidity pressures and pre-emptively safeguard domestic growth. Despite the policy shifts, the impact on earnings for real estate investment trusts (REITs) under PublicInvest's coverage, particularly those with floating-rate loans, is expected to be limited. The firm estimates a potential 1 per cent to 2 per cent reduction in interest costs should a 25 bps OPR cut materialise. "We keep our earnings estimates unchanged for now. Although we still believe the sector is fairly valued for now and maintain our Neutral stance, the attractive dividend yield of around 5 per cent looks sustainable," the firm said in a note. KL-listed REITs are currently offering an average gross yield of about 6 per cent, reinforcing the sector's appeal amid market volatility. Among its REIT coverage, PublicInvest has reiterated its preference for Sunway REIT (SREIT), citing its diversified asset portfolio and ambitious growth plan under the Transcend 27 roadmap. The strategy targets portfolio expansion from RM10 billion to RM14 billion to RM15 billion within the next two to three years. SREIT is expected to benefit from full-year earnings contributions in FY2025 from recently acquired assets, including 163 Retail Park in Mont Kiara, Kluang Mall in Johor, and an industrial facility in Prai, Penang. Additionally, the reconfiguration of Oasis retail space at Sunway Pyramid, down to 260,000 sq ft from 320,000 sq ft as of November 2024, is anticipated to enhance rental efficiency. In light of these developments, PublicInvest has raised SREIT's target price to RM2.10 (from RM1.80), reflecting an implied forward dividend yield of approximately 5.5 per cent based on FY2026 estimates. PublicInvest also noted that while Malaysia's retail sales are on a recovery path, rental reversions for malls in key urban locations are likely to remain flat in the near term. This is due to incoming retail supply and ongoing market uncertainty stemming from renewed trade tensions. "That said, we believe those established malls with a good tenant mix are expected to stay resilient and hence occupancy rates are likely to remain steady."
