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New Straits Times
6 days ago
- 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."
New Straits Times
10-06-2025
- Business
- New Straits Times
Reit sector set for strong second half
KUALA LUMPUR: Malaysia's real estate investment trust (Reit) sector is set for a resilient second half of 2025 (2H25), driven by asset recycling, enhancement works and a recovery in hospitality. Maybank Investment Bank Bhd (Maybank IB) said key catalysts include Sunway Reit's RM613 million divestment of a tertiary property and Axis Reit's RM24 million sale of The Annex — a warehouse with office space. It also pointed to Pavilion Reit's RM480 million hospitality acquisition and Axis Reit's purchase of six new properties. The firm said asset enhancement by Sunway Reit and IGB Reit will support income growth, while KLCCP and Sunway Reit are expected to benefit from a post-Ramadan boost in hospitality. "We also see strategic catalysts among them Reits, including CapitaLand Malaysia Trust (CLMT)'s industrial diversification into logistics to make up 7.9 per cent of assets under management by financial year 2026 (FY26) and Sentral Reit's ongoing pivot away from pureplay office exposure. "Al-Salam is progressing on its "DISRUPT27" repositioning strategy, with asset recycling and Komtar JBCC's on-going reconfiguration expected to support medium-term yield and valuation recovery. "Pavilion Reit and CLMT's planned placements and new assets also offer medium-term upside to earnings and distribution per unit growth," the firm said. With Bank Negara Malaysia expected to consider an Overnight Policy Rate (OPR) cut in 2H25, Maybank IB said the trusts with higher floating-rate debt, currently around 47 per cent of sector average, stand to benefit from reduced financing costs. The firm said this supports valuation upside and lowers financing costs for growth-oriented Reits. "Nonetheless, most Reits continue to guide for stable dividends, and with gearing levels largely within comfortable thresholds. There remains room for selective growth via yield-accretive acquisitions," it added. Maybank IB said the Reits' management maintained a cautiously optimistic outlook, flagging several macro uncertainties. These include potential implementation of an 8.0 per cent service tax on rental, which would add costs for tenants while limiting Reits' ability to raise rents, as well as potential increase to electricity tariffs and broader economic uncertainties, such as fuel subsidies and tariff wars. The firm maintained its "positive" stance on the the sector, underpinned by resilient fundamentals, attractive yields and visible catalysts for income growth in 2H25. It noted that as the Reits appear to head towards further asset diversification, quality of assets in its portfolio would be crucial. Sunway Reit remains Maybank IB's top pick with a target price of RM2.13. Other "Buy" calls include Pavilion Reit and Axis Reit, with target prices of RM1.83 and RM2.01, respectively, backed by income resilience and asset defensiveness High-yield plays include YTL Hospitality Reit at RM1.18, Sentral Reit at 88 sen and Capitaland Malaysia Trust at 76 sen.
New Straits Times
09-06-2025
- Business
- New Straits Times
Banking sector poised for stronger earnings: HLIB Research
KUALA LUMPUR: The banking sector's earnings momentum is projected to accelerate in the second half of 2025 (2H), following a modest performance in the first quarter. Hong Leong Investment Bank Bhd (HLIB Research) said the first quarter of 2025 earnings season was broadly in line with expectations, with Bank Islam Malaysia Bhd being the only bank under its coverage to miss estimates due to higher credit costs. The remaining seven banks it covers, namely Affin Bank Bhd, Alliance Bank Malaysia Bhd, AMMB Holdings Bhd (AmBank), CIMB Group Holdings Bhd, Malayan Banking Bhd (Maybank), Public Bank Bhd and RHB Bank Bhd, delivered results that tracked closely with forecasts. The firm said the sector earnings rose 4.1 per cent year-on-year (YoY), driven by lower loan impairment provisions, but fell 3.4 per cent quarter-on-quarter on a sequential rise in credit charges. "Looking ahead, we forecast sector earnings for financial years 2024 to 2026 (FY24-25) to grow at a two-year compound annual growth rate of 3.4 per cent," it said in a note. HLIB Research anticipates net interest margins of the bank in the second quarter of this year to hold up reasonably well sequentially. It pointed out three key forces at play, including fresh liquidity from the recent statutory reserve requirement cut, easing deposit competition and a sector-wide pivot to more disciplined loan expansion and funding strategies. "This proactive stance is already visible, with banks cutting promotional/campaign fixed deposit rates by five to 15 basis points in May, ahead of a potential Overnight Policy Rate cut, though the full margin benefit may only materialise in 2H 2025. "Beyond margins, the bedrock of asset quality is expected to remain solid, supported by resilient domestic economic conditions and minimal US trade exposure," the firm added. Recognising risks from the secondary impacts of trade uncertainty, HLIB Research said any potential weakness will be well-contained. It noted that the sector is significantly more resilient than in previous downturns, primarily due to the formidable provision buffers accumulated over the past five years. It said the "fortress of provisions" provides a robust defence, capable of absorbing any stress and cushioning the gross impaired loan ratio, which currently stands near historical lows. HLIB Research maintained its "Overweight" stance on the banking sector and views the KLFIN Index's year-to-date 7.0 per cent decline as a tactical opportunity to accumulate ahead of a potential recovery in the latter part of the year. The firm's top picks include CIMB with a target price of RM8.80 a share, as well as AmBank (TP: RM6.20) and RHB (TP: RM7.70).
New Straits Times
24-05-2025
- Business
- New Straits Times
Bank Negara has policy space as inflation remains contained: Economists
KUALA LUMPUR: Bank Negara Malaysia may have room to ease interest rates in the coming months as inflationary pressures remain contained and external economic headwinds build, economists said. April's consumer price index (CPI) data showed that headline inflation held steady at 1.4 per cent year-on-year, unchanged from March, despite festive-season spending during Hari Raya. Core inflation, however, inched up to two per cent, the highest in 17 months, driven by firmer price pressures in services and durable goods. Putra Business School economic analyst Prof Dr Ahmed Razman Abdul Latiff said the benign inflation backdrop, coupled with rising global risks, supports the case for a potential 25 basis-point reduction in the Overnight Policy Rate (OPR) in the second half of the year. He pointed to geopolitical tensions and reciprocal tariff measures by the United States (US) as key threats to global trade, which could spill over into Malaysia's export-oriented economy. Still, Razman expects domestic growth to remain resilient. "Despite all the uncertainties caused by US tariffs, the economic outlook for the second half of the year remains positive, supported by stronger trade activity and expected higher foreign direct investments," he told Business Times. He added Malaysia's chairmanship of Asean this year is also expected to lift domestic demand through enhanced regional collaboration. According to the Department of Statistics' (DOSM) report on Wednesday, price increases in April were led by personal care and housing costs. Personal care saw the sharpest rise at 4.1 per cent, while education and housing expenses increased between 2.0 and 2.3 per cent. Food and beverage inflation eased slightly to 2.3 per cent from 2.5 per cent a month earlier, helped by lower vegetable and dairy prices despite festive demand. Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said while inflation is largely under control, Bank Negara may soon need to pivot its policy stance if growth slows meaningfully. "The current economic environment is highly fluid, which necessitates a careful and well-calibrated monetary policy response," he said, adding that a rate cut of 25 basis points could be considered if signs of a slowdown persist. He said gross domestic product growth in the second half could dip below four per cent, warranting policy support. This outlook is consistent with Hong Leong Investment Bank (HLIB) economist Felicia Ling's view that the inflation environment remains relatively benign. "Recent data suggests a benign domestic inflation with minimal inflationary pressures, leaving Bank Negara more room for monetary easing," she said in a research note. HLIB has maintained its full-year CPI forecast at 2.7 per cent but cautioned that global demand weakness and subdued commodity prices pose downside risks. Maybank Investment Bank chief economist Suhaimi Ilias said broader inflation trends have remained muted despite policy changes. "Inflation remains subdued at sub-two per cent year-to-date even with the 13.3 per cent minimum wage hike in February," he said. He added that the limited price pass-through may be attributed to the hike's initial application only to large employers. Meanwhile, DOSM said deflation persisted in certain segments, led by a 4.5 per cent fall in information and communication and a 0.1 per cent dip in clothing and footwear. Public Investment Bank economist Sabrina Edora said while inflation will likely stay below three per cent for the year, risks could emerge from domestic policy shifts. These include fuel subsidy reforms and a wider service tax net. Still, she believes any inflationary impact will be manageable if such reforms are introduced gradually and supported by offsetting measures. "Given the backdrop of lower global commodity prices, the near-term inflation trajectory is expected to remain benign, even in the event of subsidy rationalisation," she said. Bank Negara's latest monetary policy statement projected headline inflation to average between 2.0 and 3.5 per cent this year, with core inflation between 1.5 and 2.5 per cent. With three policy meetings left in 2025, in July, September and November, economists say the central bank has policy space if conditions deteriorate. A 25 basis-point cut in the third quarter is still on the table, Edora said, assuming stable macroeconomic conditions and continued electricity tariff subsidies.
New Straits Times
08-05-2025
- Business
- New Straits Times
Economy continued to grow despite tariff uncertainties- BNM governor
KUALA LUMPUR: Following is the transcript of Bernama's email interview with Bank Negara Malaysia (BNM) Governor Datuk Seri Abdul Rasheed Ghaffour on the Overnight Policy Rate (OPR) and Statutory Reserve Requirement (SRR). Q1. Governor, can you walk us through the Monetary Policy Committee's (MPC) decision on the Overnight Policy Rate (OPR) today? The MPC has decided to maintain the OPR at 3 per cent at its meeting today. At present, this decision remains consistent with our assessment of the Malaysian economy. The MPC remains vigilant to ongoing developments that may affect our growth and inflation prospects. We will continue to assess our monetary policy stance to ensure that it remains conducive to sustainable economic growth amid price stability. Q2. How do you see these tariffs and shifting global trade dynamics impacting Malaysia's economic outlook moving forward? As a small and open economy, we acknowledge that Malaysia will face both direct and indirect impacts from these tariffs. Beyond the direct impact of tariff imposition, events that affect the global economy may also spill over to affect our growth and inflation trajectory. Given current developments, we will be reviewing the GDP growth forecast of 4.5–5.5 per cent for 2025, which was announced in March. But we do not expect a recession. While outcomes from trade negotiations remain uncertain, we are facing this from a position of strength. Latest data indicates that Malaysia's economy continued to grow in the first quarter of 2025. This suggests our domestic demand remains resilient, anchored by household spending and investment activity. Moving forward, employment and wage growth, and income-related policy measures will support household spending. Investment activity will be sustained by the continued realisation of approved projects. Together, this will provide us with a buffer against global shocks. An escalation of trade tensions and heightened global policy uncertainties will weigh on Malaysia's external sector. But continued demand for our electrical and electronic (E&E) products, which are excluded from the tariffs, and higher tourist spending will cushion our exports. We expect travellers to continue visiting Malaysia, encouraged by improved flight connectivity, visa-free policies, and Visit Malaysia Year 2026 promotions. Our diversified exports structure also reduces our reliance on any single product or market. At present, no single market accounts for more than 15 per cent of Malaysia's exports. Downside risks could stem from a deeper economic slowdown across our major trading partners. Weaker sentiment can affect domestic spending and investments. Lower-than-expected commodity production will also weigh on growth. On the other hand, favourable trade negotiation outcomes, pro-growth policies in major economies, as well as more robust tourism activity could raise Malaysia's growth prospects. Inflation stayed moderate in the first quarter of this year. We do not expect tariffs to significantly impact our domestic inflation outlook amid moderate global cost conditions and the absence of excessive domestic demand pressures. Let me explain why. Ongoing trade tensions are expected to weigh on the global demand outlook, which will in turn, support a further easing of global commodity prices. This can help drive down production costs for businesses in Malaysia. The contained cost environment, including lower commodity prices, ensures that conditions will remain favourable for previously-announced domestic policy reforms later this year, including the planned subsidy rationalisation of RON95. Q3. How is BNM planning to navigate these tariff developments and ongoing trade uncertainty? Can we expect a rate cut soon? Malaysia's economy is in a relatively stable place for now. But as I have mentioned earlier, we are facing downside risks to our growth. We continue to monitor the situation closely and stand ready to act if need be. Malaysia's small and open nature means that our economy, exchange rate, and financial markets are affected by external shocks. Global developments are beyond our control, but we can shape our response to them. In doing so, we have a range of policy tools that allow us greater flexibility and the ability to tailor our response to specific issues. These are particularly useful if the external shocks do not lead to broad-based domestic impact and hence, would benefit from more targeted support. For example, BNM's market operations will continue to ensure orderly functioning of the foreign exchange market and uninterrupted financial intermediation during times of volatility. Separately, we also today announced plans to ease the Statutory Reserve Requirement (SRR) to release additional liquidity into the financial system. Aside from this, we maintain close coordination with the government on fiscal measures to ensure we are working towards the same objectives. We understand that this period of uncertainty can be concerning for everyone. As the situation unfolds, we aim to continue sharing our assessments of the Malaysian economy and the rationale behind our policy decisions so that the public and businesses can have the information needed to plan accordingly. Q4. We noticed that BNM also eased the SRR. Could you share a bit more about what the SRR is and what is the rationale behind the SRR cut? Let me first emphasise that the SRR is not a signal of our monetary policy stance. The OPR remains BNM's sole indicator used to signal our monetary policy stance. The SRR is a liquidity management tool that BNM uses to withdraw or release liquidity into the banking system on a longer-term basis. SRR refers to the portion of funds that banks are required to hold as reserves with BNM. Once these funds are part of the banks' reserves, they are not able to use it for other purposes. Our decision today to ease the SRR is part of BNM's continuous efforts to ensure sufficient liquidity in the domestic financial system. This will facilitate banks to better manage their liquidity in an environment of greater financial market volatility and provide continued support for financial intermediation activities.
