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Malaysian Ringgit Weakness Might Affect The Future Profitability of These 2 Companies

The Malaysian Ringgit dropped to a 12 years low following the election of Donald Trump as the 45th President of the United States. This unprecedented weakness forced the Malaysian Central Bank to intervene with both action and words.

The Malaysian Central Bank kept the spot rate artificially high at $4.27 against the USD, even as the non-delivery forward had weakened to $4.54. According to Thomson Reuters data, this is a 3.7% drop in just one day.

These actions are to assure investors that the fundamentals of Malaysia are sound.

Currency movement matters to the profitability of companies with cross-border trades. A relevant example would be Nam Cheong Ltd (SGX: N4E). In the third quarter of 2016, Nam Cheong reported an impressive 85% jump in profitability to RM760,000. But all of the improvement was helped by its favourable foreign exchange movement, which accounted for RM$15.4 million of gain. In other words, Nam Cheong was saved by currencies movements that were in its favour.

Nam Cheong was not the only company whose profitability was affected by foreign currency movements.

Great Eastern Holdings  Limited (SGX: G07) also reported that its group insurance business jumped 151% to $171 million in the third quarter of 2016, due to higher contribution from its Malaysian side, which was partly due to the Ringgit appreciating against the Singapore Dollar during that period.

Now that the ringgit has depreciated suddenly, how would these 2 companies fare in the current quarter? It would be worth checking out how affected is each company could be to the fluctuation of the Ringgit against the Singapore dollar.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat doesn’t own shares in any companies mentioned.