KUALA LUMPUR (March 18): Companies in China are increasingly investing and trading more with Malaysia and Southeast Asia as they seek new markets, cut costs and lower geopolitical risks, said HSBC.

Malaysia, among other Southeast Asian nations, now offers “clear advantage” with average wages at just 75% of those in China, according to HSBC’s strategy note. Malaysian consumers benefit from higher product range and often at lower prices, while importers of Chinese products also benefit, HSBC said.

Home improvement company MR DIY Group (M) Bhd is “enjoying lower costs from its Chinese imports, benefiting margins,” said HSBC. However, Malaysia’s medical glove manufacturers have been “hit particularly hard”, with margins and profits hurt by intense competition and oversupply, it noted.

HSBC has a “buy” call on Mr DIY with a target price of RM2.06, which values the company at 30 times its forward earnings, justified by its high return-on-equity, “consistent mid-teen” free cash flow margin, and 14% average annual earnings growth over 2023-2026. The stock was last at RM1.51.

China has been Malaysia’s biggest trading partner since 2009, while Malaysia, which mainly exports electrical and electronic products, is China’s largest trading partner in Southeast Asia after Vietnam. Malaysia is also dominant in semiconductor packaging, assembly and testing within the region.

Chinese semiconductor firms have partnered with Malaysian companies like Inari Amertron Bhd in advanced chips packaging, while Xfusion Digital Technologies Co Ltd has partnered with NationGate Holdings Bhd to set up a production centre for graphic processing unit servers in Penang.

Solar panel maker Longi, the world’s largest monocrystalline silicon manufacturer, has set up subsidiaries in Southeast Asia and is building three factories in Malaysia. 

“While China dominates the production of electronics, Malaysia, Thailand, Singapore and now Vietnam provide a platform to produce a variety of electronic components and parts,” HSBC highlighted in a report on China’s presence in Southeast Asia.

Malaysia has developed “a strong foundation in solar module manufacturing and tech outsourcing”, with rising production as manufacturers shift their bases from China to avoid Western sanctions, HSBC added.