MyEG, EP Manufacturing, Eco World, Dialog, AAX seen reaping benefits of China premier’s visit to Malaysia

Friday 20 Dec 2024

KUALA LUMPUR (June 19): At least five Bursa Malaysia-listed companies stand to benefit from the official visit by China’s Premier Li Qiang to Malaysia, which is expected to bring more foreign direct investments (FDI) from China into Malaysia, further relaxations in visa requirements and new trade agreements inked, according to Maybank Investment Bank Bhd (Maybank IB).

The five potential beneficiaries are MyEG Services Bhd (KL:MYEG), EP Manufacturing Bhd (KL:EPMB), Eco World Development Group Bhd (KL:ECOWLD), Dialog Group Bhd (KL:DIALOG), and AirAsia X Bhd (KL:AAX).

Maybank IB observed that in the past, Chinese investments into Malaysia were mostly established in and around the time Chinese President Xi Jinping visited Malaysia in October 2013 and when former Chinese Premier Li Keqiang visited Malaysia in November 2015.

When Xi Jinping visited Malaysia in October 2013, Maybank IB noted that the president touted, among other things, a proposed High Speed Rail (HSR) connecting Kuala Lumpur and Singapore, the Malaysia-China Kuantan Industrial Park, and the development of northern Malaysia. This was followed by maiden joint military exercises by both countries in September 2015.

Meanwhile, following Li Keqiang’s visit in November 2015, FDIs from China to Malaysia surged in 2016 and 2017, as Malaysia granted visa-free access to Chinese visitors from March 2016 onwards, and China Communications Construction Company (CCCC) commenced construction of the East Coast Rail Link (ECRL) in August 2017, Maybank IB noted.

With Li Qiang commencing his visit to Malaysia on Tuesday, Maybank IB posits that MYEG’s blockchain-based ZTrade platform could gain substantial traction following the signing of official documentation between Malaysia’s Ministry of Finance and the General Administration of Customs China on Wednesday.

ZTrade enables the digitalisation of trade clearance and tariff computation to cut processing time by up to 50%.

"We have yet to impute for potential ZTrade earnings accretion into our forecasts for MYEG, as cross-border trade volume is harder to ascertain (versus publicly available trade value statistics). Similar to MYEG’s Zetrix token sales business, we expect ZTrade’s net operating margins to be in the 90-95% range," Maybank IB said in a note on Wednesday.

Meanwhile, EP Manufacturing, which recently expanded upstream, is collaborating with Chinese original equipment manufacturers (OEM) Great Wall Motor and Beijing Automotive Group Co to serve as their contract assembler in Malaysia for right-hand drive vehicles, for local and export markets.

According to Maybank IB, operations at EP Manufacturing's assembly plant are set to begin in the second half of 2024, with an initial capacity of 6,000 units per annum, projected to reach 30,000 units per annum as EP Manufacturing secures more OEM assembly contracts.

“According to the company, this venture is expected to boost EP Manufacturing's margins, with contract assembly offering higher margins compared to its traditional automotive parts manufacturing (teens versus low single digits in percentage terms). The vertical integration is anticipated to create synergies, enabling EP Manufacturing to supply parts to the vehicles it assembles," Maybank IB wrote.

On the other hand, the investment bank sees Eco World's exposure in the industrial property segment benefitting from China's establishment of more factories and industrial facilities.

Specifically for Dialog, Maybank IB pointed to Rongsheng Petrochemical's commitment to an estimated total investment of up to RM80 billion for a refining facility in Pengerang, Johor.

Maybank IB said that this will benefit Dialog due to a need for local EPCC expertise and storage of crude/refined/distilled products, as the company would be able to provide long-term tank terminal services to Rongsheng, should the investment come to pass.

"Based on our calculation, every RM6.5 billion tank terminal investment (long-term, independent, average utilisation rate assumptions of 87.5%, Ebitda margins of 80%) by Rongsheng will lift Dialog's equity value by RM4.2 billion, which will raise our target price by 74 sen per share from RM3.13 currently," it said.

Lastly, Maybank IB said AAX, which has the largest exposure to Chinese destinations among Malaysian airlines, may benefit from the potential permanent exemption of visa requirements for Chinese visitors.

Malaysia exempted visa requirements for Chinese visitors on Dec 1, 2023, which will run until Dec 31, 2025. Neighbouring Thailand, meanwhile, permanently exempted visa requirements for Chinese visitors on March 1, 2024. "Chinese visitors are known to respond favourably to visa exemptions." Maybank IB noted.

"That said, it could charge higher fares to and from China. We estimate that every RM5 increase in average fare will accrete RM16 million-RM17 million per annum to core net profit and 26 sen to our target price," it added.

Li Qiang’s visit to Malaysia, his first trip to the country since assuming office in March last year, coincides with the 50th anniversary of the establishment of diplomatic relations between Malaysia and China, following the signing of the Joint Communiqué between the second prime minister, Tun Abdul Razak Hussein, and then Chinese premier Chou En Lai on May 31, 1974.

Meanwhile, Bernama reported that a total of 14 Memoranda of Understanding and Agreement (MOUs/MOAs), protocol and joint statement involving nine ministries have been exchanged between Malaysia and China on Wednesday, witnessed by Prime Minister Datuk Seri Anwar Ibrahim and China Premier Li Qiang.

Nine ministries involved are the Ministry of Investment, Trade and Industry (MITI); Finance; Agriculture and Food Security; Housing and Local Government; Home Affairs; Science, Technology and Innovation (MOSTI); Higher Education (MOHE); Tourism, Arts and Culture; and Communications.

On behalf of MITI, two MOUs were exchanged, on strengthening investment cooperation in the digital economy and promoting investment cooperation in green development.

Besides the MOUs, Malaysia and China also inked the second cycle of the Malaysia-China five-year programme for economic and trade cooperation to deepen further linkages between industries in priority sectors like high-level manufacturing and digital economy.

The programme would also deepen cooperation in robotics, entrepreneur development, innovation and startup, as well as research and development in agriculture and primary industries.

For the Communications Ministry, two MOUs were exchanged. The first is with the China Media Group on cooperation in the field of media, while the second MOU is to strengthen cooperation in the postal field between the Malaysian Communications and Multimedia Commission and the China State Postal Bureau.

Under the Finance Ministry, the document exchanged was a joint statement on national single window for cross border trade initiative, while under the MOHE, the MOU on cooperation in the field of higher education while under MOSTI, on science and technology people-to-people exchange programme.

As for the Housing and Local Government Ministry, the MOU exchanged was for the fields of housing and urban development.

Earlier, both leaders had a closed door meeting to discuss bilateral relations between Malaysia and China and exchanged views on regional and international issues of mutual interests.

Next, Anwar will be hosting a luncheon for Li and his Chinese delegation before departing to Shangri-la Hotel, Kuala Lumpur.

Li will also have an audience with His Majesty Sultan Ibrahim, King of Malaysia on Wednesday.

Both Anwar and Li will also attend the East Coast Rail Link (ECRL) groundbreaking ceremony in Gombak and conclude their schedule on Wednesday with a dinner celebration for the 50th anniversary of diplomatic relations.

China has been Malaysia’s largest trading partner for 15 consecutive years since 2009. Last year, total trade with China was valued at RM450.84 billion (US$98.8 billion), contributing to 17.1% of Malaysia’s global trade.

Edited BySurin Murugiah

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