• Economy moderated sharply by 0.7% in 1Q20

• External demand and investments declined, while private consumption growth moderated

• The services and manufacturing sectors moderated while the other sectors contracted

• Current account registered a surplus of RM9.5bn or 2.6% of GDP

• Higher net inflow for FDI

• Recession is imminent

Malaysia's economic growth eased sharply in the first quarter due to the measures taken to contain the spread of the Covid-19 pandemic. Gross domestic product (GDP) grew 0.7% yoy, following a 3.6% rise in 4Q19, supported by domestic consumption. That was the slowest pace since 3Q09 when the economy contracted 1.2%. On a quarter-on-quarter seasonally-adjusted basis, the economy shrank 2.0% (4Q19: 0.6%).

In 1Q20, most sectors and components moderated. Overall, private sector spending (1Q20: 4.7%; 4Q19: 7.4%) continue to drive the economy. Growth in private consumption moderated while private investment contracted. Gross fixed capital formation remained with negative growth. On the production side, the performance was backed by services and manufacturing sectors. However, the mining & quarrying, construction and agriculture sectors recorded a decline.

Source: BIMB Securities Research - 14 May 2020

• MYEG is offering one-stop portal for employees and foreign workers in Malaysia for the Covid-19 screening test under SOCSO’s Prihatin Screening Program (PSP).
• We see MYEG’s one-stop portal would provide mass Covid-19 testing assistance for the government. This is in tandem with SOCSO’s aim to conduct 100,000 monthly testing.
• No change to earnings forecast as it is still early to gauge the participation rate through MYEG portal. Still, we expect 7 million employees to register under PSP.
• Maintain BUY at TP of RM1.70, implying FY20/21F of 21x/16x respectively.

One-stop portal for Covid-19 screening test

MYEG is offering one-stop portal for employees in Malaysia, including foreign workers who are registered as contributors to the Social Security Organisation (SOCSO) for the Covid-19 screening under its Prihatin Screening Program (PSP). Upon completion of the screening, MYEG will issue a dynamic QR colour code on mobile apps indicating the test status for verification purposes. Since the launch of PSP on 27 Apr, over 300,000 employees had registered through SOCSO’s website.

Mass Covid-19 testing expected ahead

We are positive on the announcement as we expect MYEG’s portal for PSP to provide potential earnings contribution to its ancillary business. Besides, this would be a great assistance for the government to boost Covid-19 testing and in tandem with SOCSO’s target to conduct 100,000 tests monthly, translating to approximate 3,300 daily testing. As at 11 May, Malaysia had done over 260,000 testing, averaging 5,000 daily testing (Chart 1). Management revealed that MYEG is collaborating with several panel clinics for the PSP and will receive RM20 fee for every testing. In addition, MYEG claims these panel clinics are able to conduct total screening tests up to 10,000 per day.

No change to earnings

We have a positive view on this latest venture, but we make no change to earnings forecast for now as it is still early to gauge the participation rate through MYEG portal. Based on our assumption of SOCSO’s active contributors which represents c.40% of total labour force in Malaysia (2019: 17.6 million) (Table 1), we expect 7 million employees to register under PSP.

Reiterate BUY at RM1.70 TP.

Reiterate BUY with a DCF-derived TP of RM1.70 (WACC: 8.6%, terminal growth rate: 1%), implying FY20/21F PE of 21x/16x. We believe its expertise in IT services and proven track record in e-government services as well as its capability in offering complementary services to the public has set a high benchmark for new players to enter the market.

Source: BIMB Securities Research - 14 May 2020

• US NFP fell 20.5m in April

• The unemployment jumped from 4.4% to 14.7%

• Wage growth rose to 4.7% mom and 7.9% yoy

• Labor force participation rate plunges to 60.2%

• Covid-19 pandemic wipes out nearly all job gains of past decade

The US economy set new records in April for job losses and the unemployment rate, as the coronavirus pandemic took an enormous toll on economic activity throughout the country. Nonfarm payroll employment fell by 20.5m during the month. The change in total nonfarm payroll employment for February was revised down by 45,000 from +275,000 to +230,000, and the change for March was revised down by 169,000 from -701,000 to -870,000. With these revisions, employment changes in February and March combined were 214,000 lower than previously reported.

The leisure and hospitality sectors lost 7.7m jobs - nearly half of all employment in hotels, bars, restaurants, tourism, and travel - and those losses accounted for 37% of the total for the month. In other sectors, retail shed 2.1m jobs, manufacturing lost 1.3m and white-collar sectors saw 2.1m job losses. State and local governments also started cutting back, with a nearly 1m layoffs. And in what may seem odd during a health crisis, the medical sector lost 1.4m jobs as elective procedures were put on hold and Americans avoided the health care system whenever possible.

The unemployment rate jumped 10.3 percentage points to 14.7%, the highest since World War II. A broader measure of unemployment, the U-6 underemployment rate, rose to 22%. The number of unemployed persons who reported being on temporary layoff increased about ten-fold to 18.1m in April. The number of permanent job losers increased by 544,000 to 2.0m. The labor force participation rate fell to 60.2% in April - the lowest since January 1973. And the employment-to-population ratio dropped to 51.3%, reflecting the largest one-month decline and the lowest reading in US history. Average hourly earnings rose 4.7% mom and 7.9% yoy, skewed higher by the disproportionate loss of low-wage workers from payrolls.

Source: BIMB Securities Research - 12 May 2020

• Employment decelerated to 1.3% yoy

• The number of unemployed persons increased 17.1% yoy

• Labor force moderated to 1.8% yoy

• Labor force participation rate down to 68.6%

• Unemployment rate jumped 3.9% in March

• 1Q20 unemployment rate rises to 3.5%

• Labour force and employed persons recorded a growth of 1.7% and 1.6% respectively in 1Q20

• Unemployment rate to increase further on MCO and Covid-19 impact

The labour force moderated to 1.8% yoy in March, the lowest recorded since December 2016. The number of labour force in March decreased 0.2% to 15.84m persons as compared to February 2020. During the same period, employed persons also decreased 0.7% or 112.1k jobs to 15.23m persons. On yearly basis employment only grew by 1.3% as compared to 2.1% yoy in February. The labour force participation rate (LFPR) declined 0.1 percentage points from 68.7% in February to 68.6% in March after recorded the highest LFPR in January (68.9%).

The number of unemployed accounted for 611,000 persons in March, increased 16.2% mom and 17.1% yoy, resulting in an increase in its jobless rate to 3.9%, after 28 months of being below the 3.5% mark. The unemployment rate was also the highest since June 2010. Unemployment rate (seasonally adjusted) in March also increased to 3.9% as compared to 3.3% in the previous month.

Source: BIMB Securities Research - 12 May 2020

 
• Inventory surged 18.3% mom to 2.05m tonnes

• CPO production increased 18.3% mom to 1.65m tonnes

• Palm oil exports improved 4.4% mom to 1.24m tonnes.

• Maintain Neutral on the sector with target average CPO price of RM2,300/MT for 2020. 
 
 
Source: BIMB Securities/ MPOB 
Closing stocks increased further to 2.05m tonnes in April 
Inventory in April 2020 increased 18.3% mom to 2.045m tonnes (-25% yoy) as higher production outweigh the 4.4% increase in export and 29% drop in imports of 56.6k tonnes from 79.2k tonnes in Mar 2020. Notably, both stocks from CPO and PPO (processed PO) increased 26.0% and 11.1% respectively to 1.046m tonnes and 1.0m tonnes in April 2020, with all states recorded higher stocks. We expect stock level to remain elevated at this current level as production entering the productive season cycles. 
 
Export surged 4.4% to 1.24m tonnes  
Palm oil export volume increased 4.38% mom to 1.236m tonnes in April 2020 as major importing countries like India, China, EU, Iran and South Korea increased their intake of PO. Nonetheless, we believe exports of PO in the coming months would likely remain under pressure as Covid-19 pandemic prolongs with many countries adopting a slow approach in lifting restrictions and borders.  
 
 

• Distributive trade sales fell 5.7% yoy in March

• Sales value dropped to RM103.2bn in March

• Declining performance in all three components

• Global retail sales see record fall in March amid pandemic woes

• Retail trade performance to shrink further amid lockdown

Malaysia’s distributive trade fell -5.7% yoy to RM103.2bn in March, the first contraction since the start of the data in 2013. The fall was contributed by declining performances in all components. Wholesale trade generated sales value of RM51.8bn in March, down -2.7% yoy whilst sales value of motor vehicles decreased to -15.3% yoy.

Retail sales tumbled 6.6% yoy in March, the first decline since the series began in January 2013, following a downwardly revised 6.3% rise in the previous month. Sales fell for automotive fuels in specialised stores (Mar: -14.4%; Feb: 3.1%); household equipment (Mar: -13.1; Feb: 4.8%); cultural & recreation goods (Mar: -12.0%; Feb: 4.7%); information & communication equipment (Mar: -5.3%; Feb: 4.0%); nonspecialised stores (Mar: -0.3%; Feb: 7.4%). In addition, sales growth eased for both food, beverages & tobacco (Mar: 2.6%; Feb: 7.5%) and sales via stalls & markets (Mar: 1.7%; Feb: 9.4%).

On monthly basis, sales value of distributive trade decreased RM5.8bn or -5.3% when compared to -5.1% declined in February. Monthly sales of retail trade declined 9.9% whilst sales value of motor vehicles was lower by -4.4%. Sales of wholesale trade also declined 1.6% mom.

Meanwhile, volume index of wholesale & retail trade registered 120.1 points, contracted to -6.1% yoy. The negative growth was recorded in all subsectors, namely wholesale trade -2.5%, retail trade -7.5% and motor vehicles -14.4%. As for seasonally adjusted volume index, it recorded -11.6% mom.

Source: BIMB Securities Research - 12 May 2020