Exit fear: OUB Kay Hian says SP Setia’s longer-term earnings may be impacted by lower take-up rate of its Battersea Power Station project emanating from uncertainty of prolonged economic slowdown and sentiment in the event of Brexit.

PETALING JAYA: A number of Malaysian companies with investments in Britain would be affected should Brits decide to leave the European Union (EU) in a referendum on June 23, UOB Kay Hian said in a report.

The research house said property developer SP Setia Bhd, which has a big exposure to Britain due the Battersea Power Station project would likely be affected. It derived 40% of its earnings from the London project.

“Based on our sensitivity analysis, every 10% depreciation of the British pound would result in a marginal single- to mid-single digit impact on the company’s earnings.

“However, for SP Setia its longer-term earnings could be impacted by lower take-up rate of its Battersea Power Station project emanating from uncertainty of prolonged economic slowdown and sentiment in the event of Brexit,” it said.

Sime Darby Bhd, a diversified conglomerate with plantations as its main business, also has exposure to the Battersea project.

“Potential slower future take-up rate due to weaker economy and depreciation of pounds against ringgit will lead to lower translated earnings. However, we reckon the negative impact to the group would be minimal,” it said.

The research house said Genting Malaysia Bhd would be another Malaysian company affected by a British exit from the EU.

“Genting Malaysia UK operations could be affected due to a slowdown in consumer spending and hence lower visitation from home market players (but this could potentially be offset by higher foreigners’ visitations due to cheaper British pounds and lower translated ringgit profit from UK operations due to weaker pound sterling.

“UK operations made up 11% of our 2016 earnings before interest, tax, depreciation and ammortisation (Ebitda) forecast and a 10% weakness in British pounds to ringgit will have a 1.0% mild negative impact to our Ebitda forecast and 0.8% negative impact to revised net asset value.

“However, we note that there could be potential non-core translation loss from its pound-dominated assets,” it said.

It added that YTL Power International Bhd, which owns Wessex Water, would see lower ringgit-translated earnings too although the underlying asset has a natural hedge due to revenue and cost being transacted in pound sterling. “Importantly, Wessex Water’s earnings and cashflow visibility will remain high against a backdrop of OFWAT’s regulatory framework,” it said.