1/9/05 (The Star) - COMPANIES that are export-based may see some revenuebeing eroded by the ringgit depeg but those contacted by StarBiz wereoptimistic that they would be able to withstand the stronger currency andmaintain their competitiveness in the global market.
While the plantation sector is generally perceived as bearing the brunt ofthe ringgit float, Golden Hope Plantations Bhd believes that moving up thevalue chain would circumvent the burden from a stronger currency.
"As Malaysia develops, high-value manufacturing is what Malaysiancompanies should aspire to do. Their profitability cannot continue todepend on low cost of labour or a weak currency," said group chiefexecutive Datuk Sabri Ahmad.
Datuk Sabri Ahmad
The plantation group had been actively gearing up the oil palm valuechain, including an initiative to joint venture with Cognis DeutschlandGmbH Co KG to produce, market and sell fatty acids, fatty alcohol,glycerine and other products in Malaysia.
He added that the production of biodiesel would be another major businessas supply of petroleum becomes limited.
Golden Hope also stands to gain from the depegging of China’s yuan sinceit would increase imports and the demand for derivatives like palm oil,Sabri said.
Malaysian Bulk Carriers Bhd (Maybulk) expects the impact to be mitigatedby a decline in operating costs amid lower import expenses of resourcesand raw materials.
"As will be the case for all US dollar-denominated industries, theimmediate impact of a ringgit strengthening will be on revenue. The USdollar revenue will, of course, be translated into lesser ringgit,"according to Maybulk’s management.
However, it pointed out that a major portion of ship-operating expensessuch as insurance, crewing, spares and consumables, and port expenses werealso US dollar-denominated.
As such, cost would be lower and provide some cushion on the adverseimpact on revenue, the management said.
In addition, the ringgit, which had appreciated slightly more than 1%since the depeg on July 21, was not expected to have a significant impacton the group’s bottomline.
"But, if the currency strengthens further, then relatively, the adverseimpact on the bottomline will increase," Maybulk said.
"What is important is to ensure that as the ringgit strengthens, we havetaken steps to ensure that our cash assets in US dollars are not eroded.In this regard, we have hedged our cash receivables," the company added.
Golden Hope also took similar steps to use hedging instruments to protectits balance sheet from the currency volatility, given its substantialportion of foreign currency-denominated revenue.
Lee Swee Eng
Meanwhile, the uplift of the ringgit peg had also resulted in some costsavings on fertilizers since it’s the second largest cost after labour.The plantation group spent about RM140mil a year on fertilizers, Sabrisaid.
Oil and gas player KNM Group Bhd, which derives 80% of revenue in foreigncurrency, expects its strong order book to increase further and to sustainits revenue.
"Our cost of materials will reduce since most of them are imported, henceour overall profitability should improve," said managing director Lee SweeEng.
Although prices would increase marginally, it should not impact thecompany's competitiveness due to the high demand for processed equipment,he added.
Meanwhile, hardwood flooring maker Ekowood International Bhd chiefexecutive officer Tan Aik Sim said more emphasis would be given to improveoperations to buffer the impact of a stronger ringgit.
Noting that Ekowood floors are made from 100% wood, 35% of which isimported, Tan said: "We try to make the combination more efficient."
Besides, he added, some of the cost could be passed on to consumers.
International pharmaceutical player Hovid Bhd expects old stocks to garnera lower margin after the depeg. However, a senior officer of the companysaid the business does have a natural hedging system - as both its importsand exports are in US dollar so "in the long run, we are able to mitigatesome of the differences"
Hovid is optimistic of its competitiveness and would continue to seek newexport markets. The company exports to more than 30 countries, the majormarkets being the US, Europe and Japan.
Meanwhile, the impact of the depeg is not all grey since overseasinvestments are now much cheaper. Golden Hope, which has investments inSouth Africa, Vietnam, Bangladesh and the Netherlands, planned to increaseits overseas exposure to perhaps the US, Canada and Germany, Sabri said.
Lee of KNM, on the other hand, said the company planned to adopt partmanufacturing in its overseas shops like China to take advantage of thestronger currency.