AMONG Asean currencies, the baht is leading the pack against the US dollar, strengthening 8.03% against the greenback year to date. The Thai currency has appreciated 2.9% since the start of the year versus the ringgit.

Not many people may have noticed that the strong baht has supported earnings growth in Malaysian companies that have operations up north. Companies that generate at least 25% of their revenue in Thailand include AE Multi Holdings Bhd, Zhulian Corp Bhd, ES Ceramics Technology Bhd, Notion Vtec Bhd, Fraser & Neave Holdings Bhd (F&N), Evergreen Fibreboard Bhd, D’Nonce Technology Bhd, MQ Technology Bhd, Aluminium Company of Malaysia Bhd (Alcom) and EG Industries Bhd.

JF Apex Securities Bhd head of research Lee Chung Cheng tells The Edge that the benefits of the rising baht would be limited for these companies as most of them are manufacturing products in Thailand for export and revenue is usually denominated in US dollars.

“These companies are mostly in EMS (electronics manufacturing services), electronics and wood-based products for export, and the proceeds are in US dollars, hence, they won’t benefit much as the ringgit has also strengthened 4.5% against the greenback YTD,” he says.

But, Lee adds, companies involved in consumer products, such as Zhulian Corp, may see some benefit given that 66% of total group revenue came from Thailand for the financial year ended Nov 30, 2016 (FY2016).

Zhulian, which distributes consumer goods through its multilevel marketing network, saw its share price gain 36% YTD (to RM1.66 last Wednesday from RM1.22 at the beginning of the year). The stock has a historical price-earnings ratio of 14.32 times.

However, Zhulian’s revenue from Thailand grew barely 1.09% year on year to RM125.63 million for FY2016. Nonetheless, the Thai operation fared better than the 31% drop in revenue locally.

The multilevel marketing firm’s annual revenue declined 15% to RM191.3 million for FY2016, while net profit came in lower at RM41.59 million versus RM53 million.

F&N’s revenue from Thailand expanded 6.88% y-o-y to RM448.55 million in the third financial quarter ended June 30. In contrast, Malaysian revenue declined nearly 14% to RM592.45 million.

For the nine months ended June 30, F&N’s Thai revenue grew 9% y-o-y to RM1.34 billion while sales in Malaysia fell 9% y-o-y to RM1.78 billion. Likewise, group revenue from Thailand grew to RM1.47 billion in the financial year ended Sept 30, 2016 (FY2016). Revenue in Malaysia declined 6.02% y-o-y over the same period to RM2.23 billion.

Alcom’s Thai revenue ballooned to RM97.2 million for the financial year ended March 31, 2017 (FY2017), from RM68.15 million previously, while Malaysian revenue fell 2.5% to RM93.61 million.

It is apparent that the Thai operations, at least among these three companies, have helped to mitigate the impact of the earnings contraction at home.

With almost 40% of group revenue coming from Thailand in FY2016, Lee thinks F&N is fairly valued and would have limited upside in terms of yield. As at last Thursday, F&N’s share price had risen to RM24.78 apiece from RM23.34 on Jan 3. The group has a historical PER of 25.68 times.

Another analyst says the business model of these companies plays an important role in determining how much they will benefit from the appreciation of the baht.

“We have to look at these companies on a case-by-case basis, judging by their respective cost structures and hedging policies. It is not as straightforward as the US dollar rally last year,” he says.

Areca Capital CEO Danny Wong agrees, saying investors should observe these companies’ next quarterly financial results.

“It would be good to wait for some of their quarterly results announcements and see if they reflect any benefit from foreign exchange fluctuations. It also depends on their hedging policies. If a company hedges a big portion of its baht exposure, this round of appreciation may be neutral to it, or it may take longer for its financial statement to reflect the benefit,” he says.

Other than Zhulian and F&N, Wong says ES Ceramics Technology, which produces glove formers, may be better off from the baht appreciation. But a person familiar with the company’s finances says the impact is not going to be significant.

“There is some accounting impact — if you look at the baht over the course of one year, it has appreciated quite a lot. But in terms of business cash flow, the impact is not significant,” he says.

“In fact, ES Ceramics will have to absorb some import costs for orders directly from the factory in Thailand to the Malaysian customer. These clients are not going to pay for the currency appreciation, they will stick to the original price in ringgit terms.”

ES Ceramics derives about 63% of its revenue from Thailand, the third highest after AE Multi Holdings Bhd and Zhulian among the 10 stocks.

ES Ceramics’ share price has been declining since it reached its all-time high of 63 sen on July 12 last year.

In terms of share price performance, Notion Vtec and Alcom are the stars among companies that earn a significant  portion of their revenue from Thailand. Their share prices have more than doubled since the beginning of the year.

However, a local broker says the share price performance should not be attributed to the appreciation of the baht.

“Notion Vtec rose along with the tech stock rally in the first half of this year while Alcom’s performance was due to high aluminium prices, which jumped to over US$2,000 per tonne for the first time since 2014,” he says.

Notion Vtec’s earnings did not fare well in the financial year ended Sept 30, 2016. Revenue from its Thai operation fell 11.78% year on year to RM116.95 million. Malaysian revenue was also lower at RM37.1 million, down 15.21% year on year.

There was a sharp improvement in the first half of FY2017, however. Net profit surged 73.59% year on year to RM10.88 million on a 16% year-on-year increase in revenue to RM136.57 million.

By the second quarter ended March 31 (2QFY2017), Notion Vtec’s net profit rose 40.77% year on year to RM4.44 million while revenue grew 21% year on year to RM68.49 million.

Mercury Securities Sdn Bhd head of research Edmund Tham warns that investors should not jump into any short-term currency play.

“We usually don’t recommend short-term currency plays, and in this case, we do not expect a significant impact on the bottom lines of these companies — the most is about 5% to 10%,” he says