Broker: UOB Kay Hian
Date of Report: 09 July 2025

Malaysia’s Resilience Amid US Tariff Hikes: Strategic Opportunities and Top Stock Picks for 2025

Introduction: Navigating the Tariff Storm

Malaysia faces an unexpected escalation in US tariffs, with a 25% import levy now applied to Malaysian exports. Despite the harsher stance, Malaysia remains a relative winner from global trade diversion and onshoring flows in ASEAN. UOB Kay Hian maintains a cautiously optimistic outlook, suggesting investors focus on domestically oriented beneficiaries while preparing to shift toward risk-on strategies as policy clarity emerges and the Western markets enter a “summer lull.”

US Tariffs: A Closer Look at the Impact

• US President Donald Trump announced a 25% tariff on imports from 14 countries, including Malaysia, exceeding expectations with a 1ppt increase compared to earlier indications.
• Malaysia’s main competitors, Thailand and Indonesia, face even higher tariffs (36% and 32%, respectively).
• Despite the increased rate, Malaysia’s role as a beneficiary of global manufacturing supply chain diversification remains intact, especially as multinational corporations continue to implement “China+1” strategies.
• However, the reduced tariff advantage against Vietnam may slow the pace of supply chain relocation, particularly in the Electronics Manufacturing Services (EMS) segment.

Market Reaction: Valuations, Volatility, and Buffer Zones

• The negative impact on Malaysian exporters appears to be largely priced in.
• During the height of tariff concerns in April, the BM Tech Index dropped to 39.1, with most stocks trading at or below -1SD of their seven-year mean forward PE.
• The index has since rebounded by 32% to 51.5, but valuations remain subdued, with most stocks still between -0.5SD and -1SD, even after factoring in conservative 2025-26 earnings estimates (6-24% below consensus).
• This suggests valuation buffers are in place to contain further downside risk, though near-term volatility may persist.

Strategic Actions: Defensive Now, Gradual Risk-On Ahead

• Recent capital market reactions (FBMKLCI and MYR) have been milder than after the April tariff announcement, supporting the view that the FBMKLCI is close to its revised support level of ~1,500.
• Investors are advised to focus on liquid, fundamentally sound large-cap stocks benefiting from domestic investment themes: Iskandar 2.0, mega infrastructure, ringgit strength, renewable energy, and blockchain/AI.
• Selected exporters also remain attractive within this framework.

Preferred Stock Picks: Detailed Analysis

Malaysia’s Strategic Relevance and Sector Analysis

Malaysia’s appeal as a strategic supply chain hub remains intact. With improved policy visibility and the US signaling openness to negotiate, markets are equipped to reassess risks more confidently. Channel checks reveal that EMS, OSAT, and SPE players are generally unwilling to absorb additional tariff costs, indicating price pressures will be passed to end-customers and possibly tempering near-term demand. However, incremental downside risk for exporters is limited, as much of the risk is already factored into share prices.

Glove Sector: Attractive Valuations and Market Share Prospects

• The glove sector’s year-to-date share price correction has already priced in intensifying competition from Chinese manufacturers, with valuations now at -2SD below the mean.
• Despite a 25% tariff, Malaysian glovemakers remain competitive due to even higher US tariffs on Chinese gloves (80% in 2025; 130% in 2026).
• Malaysian glovemakers maintain a healthy average selling price (ASP) in the US and are expected to see significant volume growth in 2H25.
• Key risk-on picks: NationGate, VS, Kossan, and Hartalega.

Sector Sensitivity to US Tariffs: Revenue and Earnings Impact

• Hard Commodities: PMETAL (<1% US revenue) is unlikely to focus on the US market due to high transport costs, unless regional premiums improve.
• Gloves: US imports 70-80 billion gloves annually, with Malaysian firms holding 30-35% market share. The US tariff hike on Chinese gloves will solidify Malaysia’s position.
  • Hartalega: 50-55% sales from US (last three quarters)
  • Top Glove: 18-23% sales from US
  • Kossan: 40-50% sales from US
• Plantation: Minimal US exposure due to America’s self-sufficiency in edible oils.
  • IOI: <1% US revenue
  • KLK: 2.5% US revenue
  • SDG: <1% US revenue
• Plastic & Packaging: Scientex’s US exposure is <10% of manufacturing export revenue, <3% of overall group revenue. Its Arizona plant helps minimize tariff impact, though utilization is still low at 45%.
• Technology: Malaysian tech players (EMS, OSAT, SPE) are net exporters to US end customers, with varying exposure:
  • Coraza: 5% US revenue
  • Greatech: 77% US revenue
  • Inari: <1% in FY24; >50% of products could ship to US
  • NationGate: <5% US revenue
  • Northeast: 26% US revenue
  • Oppstar: <5% US revenue
  • Pentamaster: <5% US revenue
  • Vitrox: 14% US revenue
  • SKP Resources: ~30% products shipped to US
  • VS: 33% in FY24; >50% products could ship to US

Malaysia’s Economic Ties with the US: Key Stats

• 11.3% of Malaysia’s total external trade in 2024 was with the US.
• 1.1% of 2024 Malaysian CPO exports went to the US.
• 1.1% of Malaysia’s 2024 inbound tourists were from the US.

Summary and Strategic Outlook

Malaysia continues to demonstrate strategic resilience in the face of US tariff hikes. Although the immediate impact on exporters and market sentiment was negative, much of this risk is already reflected in prices. Valuations remain attractive, especially among defensive and domestic-oriented names. Investors are advised to adopt a trading-oriented approach, focusing on large-cap, fundamentally sound companies, while maintaining a tactical overweight on technology and glove sectors. As policy clarity improves and global markets stabilize, the stage is set for a gradual shift toward risk-on strategies, with Malaysia poised to benefit from ongoing global supply chain diversification.