Japan hits by worst earthquake in over 100 years. The cost of reconstruction is estimated at USD161bn. The impact on Malaysia is generally limited given that Japan’s major ports and industrial areas have been spared. However, there would still be winners and losers among some sectors. For now, OSK maintain Buy into Weakness call on the Malaysian market with year-end target for KLCI of 1680 pts remain intact.
Timber Sector. Malaysia remains the largest exporter of tropical hardwoods in the world with major buyers being Japan, Taiwan and South Korea. Japan comprised 39% of total global imports of tropical plywood in 2009. Sarawakian timber companies will be the major beneficiaries if Japan increases timber imports after the tsunami due to reconstruction efforts. Companies such as WTK, which manufactures floor based products, and Ta Ann, which is into plywood, should see demand for their products soar. Other large Sarawakian timber companies with exposure to Japan include Lingui, Jaya Tiasa and Subur Tiasa.
Oil & Gas Sector. Japan is the 3rd largest importer of oil in the world (after the US and China), any demand reduction should see oil prices fall in the short term. Thus, we may see some negative sentiment in the short term, but remain Overweight on the O&G sectors. Top Buys includes Kencana Petroleum and Petra Perdana. Petronas Chemicals has the most direct exposure to oil prices.
Auto – many Malaysian companies have close ties or are directly owned by Japanese major automakers. There may be delays in sourcing for parts or Completely Built Up (CBU) vehicles
Aviation – with the risk of nuclear contamination, we believe that short term tourism will take a dive in Japan. With both AirAsia X and Malaysia Airlines flying to Japan, there could be a short term blip in their earnings.
Steel – with Japan as a major steel exporter, details are still pending if steel mills have been destroyed. Nonetheless, generally there is spare capacity in Japanese steel mills which could be used up for reconstruction. As such, the impact on global steel prices may not be too significant.
Utilities – While damage to a number of factories may curtail electricity demand in the short term, we believe the risks emanating from Japan’s nuclear plants may force a longer term closure and risk revaluation of nuclear power in Japan. This could lead to greater demand, as well as higher prices for thermal coal, in the future.
Source : OSK Research