Malaysian companies are significantly more confident about prospects in the local market than they were at the beginning of the year, according to a survey by Ernst & Young.
Ernst & Young transaction advisory services leader for Malaysia George Koshy said while Malaysian companies were exercising caution, they were still looking at opportunities to best expand their businesses and capitalise on all possible avenues of growth.
He said 42% of Malaysian respondents expected to seek acquisition opportunities in order to improve profitability and have access to new markets.
Additionally, half of the Malaysian respondents expect better closure rates in regards to deal opportunities, compared with six months ago.
“What we are seeing is obviously a sense of caution that has dominated our markets.
“The results reflect the view that while most corporates see South-East Asia as stabilising, capital allocation, productivity and efficiency are the biggest agendas across boardrooms including those in Malaysia.
“Over the next few months, the focus of these corporates will be to optimise their capital structures and reduce overall cost as they continue to be wary of changes within their own economies,” Koshy added.
Ernst & Young said a total of 48% and 73% of South-East Asian and Malaysia respondents respectively felt that revenue and margin pressure was the most significant business challenge facing their companies.
While companies remain cautious amidst economic uncertainties, they are focusing on improving profitability.
“There is a strong focus on margin and productivity improvements, cost controls, and risk management,” Ernst & Young said.
The Ernst & Young survey found that 42% of South-East Asian respondents indicated that their local economies were stable, which was an improvement from 24% six months ago.
However, the proportion of respondents who thought their local economy was improving had fallen from 54% six months ago to 36%.
“Those based out of Indonesia were most confident in their local economy, while those in Singapore were least so,” Ernst & Young said.
Among the South-East Asian respondents, the focus has shifted from growth to having the business basics to protecting profitability.
“Almost half of South-East Asian respondents have placed greater emphasis on capital optimisation activities while reducing interest in investing capital.
“This is not surprising considering 48% of the South-East Asian respondents expect the continuing euro-zone crisis to exacerbate revenue and margin pressures,” Ernst & Young said.
Appetite for mergers and acquisitions (M&As) has dipped as companies report cashed-up balance sheets.
Despite stability in the number and quality of opportunities, and likelihood of closing deals, a majority 63% of South-East Asian respondents in the survey said they would not pursue M&A activities in the next 12 months.
Ernst & Young transaction advisory services South-East Asia and Singapore leader Harsha Basnayake said South-East Asian respondents had previously held a bullish view on both the global and local economies for the past two years.
The survey found that more than half of South-East Asian respondents opined that the global economy was declining. The statistics were up from 42% who opined so six months ago.
The findings were released in Ernst & Young's bi-annual South-East Asian issue of the Global Capital Confidence Barometer yesterday.
The survey was conducted in August and September 2012 by Ernst & Young, and had a sample size of more than 1,500 senior executives spanning 41 countries.
A total of 118 participants were from Singapore, Malaysia, Indonesia, Thailand and Vietnam.