Highlights

Affin Hwang Capital Research Highlights

Author: kltrader   |   Latest post: Mon, 25 Jan 2021, 5:40 PM

 

Malaysia Economy – CPI - Inflation Declined by 1.4% Yoy in December

Author: kltrader   |  Publish date: Mon, 25 Jan 2021, 5:40 PM


  • Inflation contracted in December due to declines in costs of transport, housing & utilities, furnishing & household equipment, hotels & restaurants and prices of clothing & footwear
     
  • Core inflation, which excludes administered and volatile price items, remained unchanged at 0.7% yoy in December
     
  • We expect higher global oil prices and improvement in economic activity to put gradual upward inflationary pressure in 2021

Inflation Contracted by 1.2% Yoy for Full-year 2020 (0.7% in 2019)

Malaysia’s headline inflation contracted by 1.4% yoy in December, albeit a smaller decline than -1.7% in November. The country’s inflation rate has been in negative territory for the tenth consecutive month since March 2020. The continued contraction in inflation was attributed mainly to declines in costs of transport, furnishing and household equipment and housing & utilities, restaurants and hotels as well as prices of clothing and footwear during the month. Core inflation, which excludes administered and volatile price items, remained unchanged at 0.7% yoy in December. Costs of transport contracted by 8.4% yoy in December (-11.0% in November), due to the lower domestic retail petrol price of RON95, which averaged RM1.74/litre in December as compared to RM2.08/litre in December 2019. Costs of housing and utilities contracted by 3.3% yoy in December, partly due to ongoing electricity discounts. Prices of food and non-alcoholic beverages remained stable at 1.4% yoy in December, the same rate of increase as in November. However, prices of alcoholic beverages and tobacco, recreation, services and culture showed slight positive increases in December. For the full year 2020, the country’s headline inflation rate contracted by 1.2% yoy compared to +0.7% in the corresponding period last year, due mainly to the decline in costs of transport, attributed to the high base of domestic retail petrol prices in the previous year. Domestic retail fuel price of RON95 was capped at RM2.08/litre throughout 4Q19 compared to RM1.80/litre as at end December 2020. The electricity discount, as part of the fiscal stimulus measures, which was extended until December 2020, also placed some downward pressure on inflation.

Going into 2021, we expect higher global oil prices and improvement in economic activity to put gradual upward inflationary pressure. We are projecting the country’s headline inflation to average around 2%, as compared to the official forecast of between 1% and 3%, depending on global oil and commodity price developments. Bank Negara Malaysia (BNM) kept its overnight policy rate (OPR) unchanged at 1.75% for the third consecutive Monetary Policy Committee (MPC) meeting. However, with the whole country under stricter MCO measure (from the CMCO) except for Sarawak, we believe any decision by BNM on OPR direction (i.e. on possible further cuts) in future MPC meetings in 2021 will depend on the duration of enforcement of the MCO and its impact on the economy from containment measures. While BNM may adopt a wait-and-see approach, we believe OPR will likely remain stable at 1.75% throughout this year, in view of the introduction of stimulus packages, recovery in global demand, turnaround in public and private sector expenditure as well as possible roll-out of vaccines in the coming months.

Source: Affin Hwang Research - 25 Jan 2021

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Healthcare - Joining the Fight

Author: kltrader   |  Publish date: Mon, 25 Jan 2021, 5:40 PM


  • Private hospitals have now accepted Covid-19 patients. We expect the pricing framework to be similar to other respiratory illness plus additional costs for Covid-19 medications and consumables. Overall, we expect the private hospitals to provide the service at above breakeven costs

  • The insurance associations are still in discussions with the government to explore an avenue where insurers can ease some of the expenses of patients. Currently, different insurance policies may have different clauses for the treatment of Covid-19 at private hospitals
     
  • Overall, we do not expect the private hospitals to be any worse off under the current arrangements. We maintain our price targets and earnings forecasts for all healthcare companies under our coverage but upgrade IHH to BUY (from HOLD) on price weakness. In tandem, we upgrade the healthcare sector to OVERWEIGHT (from NEUTRAL).

Private Hospitals Now Accept Covid-19 Patients

We understand that the private hospitals are now accepting Covid-19 patients. If a public patient is instructed to get treatment at the private hospitals, the Ministry of Healthcare will bear the costs for all referred patients. Nonetheless, government hospitals will only refer specific selected Covid-19 patients to private hospitals, according to a report by Free Malaysia Today. Those who qualified are ambassadors, expatriates, and those who can afford the cost of private hospital care and those who have requested to be moved, said health director-general Dr Noor Hisham Abdullah. Meanwhile, the private hospitals will also admit walk-in Covid-19 patients, and the patients should be covered as per their insurance policy coverage.

Profit margin for private hospitals is expected to stay above breakeven level

Broadly, we expect the pricing framework for the Covid-19 and the charging mechanism to be similar to other respiratory illness. However, there could be additional costs for Covid-19 medications which are not widely available and higher usage of consumables. Overall, we expect the private hospitals to price in a minimum margin to ensure these services are provided at above breakeven costs.

The Discussions Between Government and Insurers Are Ongoing

In general, pandemic-related risks such as Covid-19 are not covered under any insurance and takaful plans worldwide. However, there is growing pressure on insurers to cover Covid-19 treatment at private hospitals. On 17th January 2021, The Life Insurance Association of Malaysia, The General Insurance Association of Malaysia and the Malaysian Takaful Association put out a joint statement to say that the industry is working with the Ministry of Health and Bank Negara Malaysia to “explore avenues where insurers / takaful operators can ease some of the expenses of patients whose conditions are required to be treated in private hospitals”. The discussions are ongoing and the government / insurance associations have yet to issue an update on the matter.

Treatment for Covid-19 Are Covered Under Some Policies, But Not All

We gathered that the insurers’ policies for Covid-19 differ, and within a same insurer, there may be differences between their policies. The Edge reported that AIA, in a 21st January 2021 internal circular to its agency force said some of its “older block” of medical plans have the clause that excludes coverage for communicable diseases that require quarantine by law. However, it said the newer generation of AIA medical plans do not have this exclusion clause. We understand that the AIA’s newer generation medical plans cover treatment for Covid-19, subject to certain conditions such as: (i) the patients will need to pay for the expense upfront and submit their claims thereafter; and (ii) the patients will need to be referred from a government hospital to a private hospitals.

Maintain PT and earnings forecasts but upgrade IHH to BUY on price weakness

Based on our understanding, we do not expect the private hospitals to be worse off under the current arrangements - the medical bills for Covid-19 patients (walk-in or referrals by the government hospitals) should be above breakeven costs. On the other hand, we do not expect the private hospitals to benefit materially from the Covid-19 pandemic either – in the interest of the nation, we anticipate that the private hospitals will only secure a minimum profit margin. We maintain our price targets and earnings forecasts for all healthcare companies under our coverage.

However, we upgrade IHH to BUY (from HOLD) on price weakness (-8.1% mom). Also, IHH’s experience in treatment of Covid-19 patients in Singapore, Turkey and India should help to ensure a smooth operation in Malaysia. Notwithstanding a challenging 2021 business outlook due to the Covid-19 pandemic and lockdowns, we remain positive on IHH’s long-term business prospects and recommend that investors look beyond the uninspiring 2021 earnings. At 40x 2022E PER, IHH is trading at 7-year average forward PER of 44x and looks attractive to us. Key risks to our BUY call are negative development in private hospitals involvement in the treatment of Covid-19 patients (ie. pressured to treat at loss) and weaker-thanexpected earnings.

Upgrade the Sector to OVERWEIGHT (from NEUTRAL)

In tandem with IHH’s rating upgrade, we are upgrading the healthcare sector to OVERWEIGHT (from NEUTRAL) by the virtue of IHH’s significant market cap vis-à- vis its peers. Downside risk to our OVERWEIGHT sector call is unexpected, negative development in private hospitals involvement in the treatment of Covid-19 patients, prolonged lock-down in Malaysia, India, Turkey, and steep downturn in the regional economies.

Source: Affin Hwang Research - 25 Jan 2021

Labels: APEX, IHH, KPJ
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Global News 25 January 2021

Author: kltrader   |  Publish date: Mon, 25 Jan 2021, 5:38 PM


US Stocks Pare Weekly Gain; Dollar Advances

US stocks slipped from records as investors grew anxious that the virus will hamper growth for longer than expected and Democrats may struggle to get a nearly $2 trillion spending bill through Congress. The S&P 500 fell by 0.30% to 3,841.47 while Dow Jones was down 179.03 points (0.57%) to 30,996.98.

Surprise US Existing-home Sales Gain Caps Best Year Since 2006

Sales of previously owned US homes increased unexpectedly in December, capping the best year for the housing market since 2006 as historically low mortgage rates helped power demand. Contract closings rose 0.7% mom to an annualized 6.76 million rate, according to National Association of Realtors data released.

US Business Activity Quickens to Start 2021, IHS Markit Says

US business activity accelerated at the start of the new year, particularly among manufacturers, while capacity constraints generated more inflationary pressures. The IHS Markit flash January composite index of purchasing managers at manufacturers and service providers increased to 58, the second-highest since March 2015, from 55.3 a month earlier, the group reported.

Brexit Slows Down Factory Deliveries, Hitting UK Economy

IHS Markit said that UK output fell at the quickest rate since May, hurt by additional red tape from leaving the European Union single market and a severe lockdown at home. Markit said its composite Purchasing Managers Index slipped to 40.6 in January, well below the 45.5 forecast by economists and also the critical 50 mark that signals expansion.

UK Deficit at US$370bn Highlights Sunak’s Fiscal Challenge

UK government borrowing surpassed a quarter of a trillion pounds in the first nine months of the fiscal year, a milestone that underscores the damage the pandemic has wrought on the public finances. In December alone, spending exceeded tax revenue by 34.1bn pounds as the cost of supporting companies and households through the crisis escalated, Office for National Statistics figures showed. That left the total deficit at a record 270.8bn pounds (US$370bn)

Japan Maintains Severe Assessment of Economy Amid Emergency

Japan’s government maintained its assessment of the economy in January, using the same terms to describe its state for the seventh straight month, amid a jump in coronavirus numbers that’s triggered a renewed state of emergency. In its monthly report released, the Cabinet Office described the overall economy in the same grim terms as in December, saying conditions remain severe despite signs of improvement. The government upgraded its view of capital expenditure and housing construction, but lowered its assessment for private consumption and business conditions.

New Zealand Inflation Surprise Suggests No More RBNZ Rate Cuts

New Zealand inflation was firmer than economists expected in the fourth quarter, adding to signs the central bank may not need to cut interest rates any further. Consumer prices rose 1.4% yoy, Statistics New Zealand said, matching the thirdquarter reading. Prices rose 0.5% from three months earlier, exceeding the 0.2% forecast.

Oil Falls With Rising US Supplies An Obstacle to Recovery

Oil declined the most in a week with rising US crude stockpiles seen as an obstacle facing a market that is still recovering from a pandemic-induced demand slump. Brent crude for March settlement lost US$0.69 to US$55.41 per barrel.

Source: Affin Hwang Research - 25 Jan 2021

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ASEAN Weekly Wrap - Bank Indonesia Leaves Its Policy Rate Unchanged

Author: kltrader   |  Publish date: Fri, 22 Jan 2021, 12:57 PM


  • Bank Indonesia (BI), in its January monetary policy meeting, kept its key policy rate (7-day Reverse Repo Rate) unchanged at 3.75% for the second meeting in a row, downside risks to economic growth remain
  • Indonesia’s export growth in December surged by 14.6% yoy in December from 9.4% in November, its second consecutive month of positive growth.
  • In Singapore, the non-oil domestic exports (NODX) in December expanded by 6.8% yoy from a decline of 5% in November, its first expansion after two consecutive months of contraction.

Weaker Rupiah Against US Dollar to Likely Remain a Concern for BI

Bank Indonesia (BI), in its January monetary policy meeting, kept its key policy rate (7-day Reverse Repo Rate) unchanged at 3.75% for the second meeting in a row. Since early last year, BI had lowered its key policy rate by a total of 125bps in 2020 in order to support the economy from the negative impact of the pandemic. BI guided that its decision was in line with expectations of low inflation and steady external stability as well as efforts to support domestic economic recovery. Moving forward, we continue to believe that BI may likely cut rates further, but will depend on the country’s economic performance. Indonesia’s export growth in December rose by 14.6% yoy in December from 9.4% in November, its second consecutive month of positive growth. Imports contracted at a slower pace of -0.5% yoy during the month compared to -17.4% in November. As a result, the trade balance remained in surplus of US$2.1bn (US$2.6bn in November), its eighth straight month of trade surplus.

Despite this, we believe that there are still downside risks to economic growth especially as partial lockdown measures remain in place in Jakarta and other parts of the country. In addition, a number of regions in Java and Bali have been imposed with tougher social and business restrictions from 11 January to 25 January 2021. Besides that, low headline inflation will also provide room for BI to lower rates further if necessary. Headline inflation rose slightly to 1.7% yoy in December (1.6% in November) but is still below the central bank’s inflation target of 2-4%. However, we believe that weaker Rupiah, which has depreciated by about 1% against the US Dollar since the start of the year, will continue to be a concern, especially in deciding on the next course of action for policy rates.

In Singapore, the non-oil domestic exports (NODX) in December expanded by 6.8% yoy from a decline of 5% in November, its first expansion after two consecutive months of contraction, supported by both non-electronic and electronic exports. The sustained recovery in China’s economy and global demand for semiconductors will continue to bode well for the country’s NODX performance. However, as several other countries especially top trading partners such as Malaysia, Thailand and Indonesia have reinstated stricter containment measures following a recent surge in Covid-19 cases, we believe this could potentially weigh on Singapore’s NODX performance in the near term. However, Singapore has already begun its vaccination exercise since 30 December 2020. Hence, the continuation of its vaccine administration will bolster domestic demand and support Singapore’s economy going forward.

Source: Affin Hwang Research - 22 Jan 2021

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Global News 22 January 2021

Author: kltrader   |  Publish date: Fri, 22 Jan 2021, 12:50 PM


Tech Shares Lead US Stocks to All-time Highs

US stocks eked out a gain to close at a record with tech shares lifting the major indexes on anticipation that more fiscal spending will revive economic growth and bolster corporate earnings. The dollar weakened. The S&P 500 rose by 0.03% to 3,853.07 while Dow Jones was down 12.37 points (0.04%) to 31,176.01.

US Jobless Claims Fall Slightly, Though Remain Near 1 Million

Applications for US state unemployment benefits fell only slightly last week and remained elevated, signaling heightened pandemic-related strain in the US labor market just as Joe Biden begins his first days as president. Initial jobless claims in regular state programs declined by 26,000 to 900,000 in the week ended Jan. 16, according to Labor Department data.

US Housing Starts Rose to Fastest Pace Since 2006 in December

US home construction starts rose in December to the best pace since late 2006 as builders responded to the robust demand for single-family housing. Residential starts climbed by 5.8% to a 1.67 million annualized rate, according to government data released. The figures are the latest sign of the housing market’s strong rebound.

ECB Seeks New Gauges by March to Aid Pandemic Stimulus Debate

European Central Bank officials have asked staff to propose new ways to measure financial conditions in the euro area, potentially assisting future decisions on how much stimulus the region’s pandemic-hit economy needs. Some officials want new ways to measure the impact of the ECB’s record-low interest rates and asset purchases on credit conditions, the people said.

UK’s Sunak to Set Out Plans to Restore Finances in Budget

Chancellor of the Exchequer Rishi Sunak will set out plans in his budget in six weeks’ time to start restoring order to the UK’s finances, a person familiar said, with the country on course to posting its biggest peacetime budget deficit. The Treasury wants to have a plan that looks beyond Covid at how to close the deficit.

BOJ’s Kuroda Maximizes Flexibility Ahead of Crucial Two Months

Bank of Japan Governor Haruhiko Kuroda looked to keep all his options open for a policy review in March following two critical months that will likely determine whether the pandemic will ease or take a turn for the worse. “Yield curve control has worked appropriately and I don’t think the framework itself needs to be changed,” Kuroda said. But from the standpoint of achieving more effective and sustainable monetary easing its operations are under review.

Indonesia Holds Key Rate on Tame Inflation, Gradual Recovery

Indonesia’s central bank left its key interest rate unchanged at a record low, projecting optimism that the economy is recovering and inflation will remain tame even with new restrictions in place to fight a surge in Covid-19 infections. Bank Indonesia held the seven-day reverse repurchase rate at 3.75%. “This decision is consistent with an inflation estimate that’s still low and maintained external stability, as well as efforts to support economic recovery,” central bank Governor Perry Warjiyo said.

Oil Slips With Global Viral Resurgence Highlighting Demand Risks

Oil ended a choppy session lower with worsening global coronavirus outbreaks accentuating concerns over a demand rebound. Brent crude for March settlement rose US$0.02 to US$56.10 per barrel

Source: Affin Hwang Research - 22 Jan 2021

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Malaysia Economy - OPR - BNM Maintains Its OPR Unchanged at 1.75%

Author: kltrader   |  Publish date: Thu, 21 Jan 2021, 12:55 PM


  • BNM guided that it will extend the flexibility for banking institutions to use MGS and MGII to meet the SRR compliance until 31 December 2022.
  • There are still downside risks to economic outlook mainly from ongoing uncertainties surrounding the pandemic and likely obstacles which might hinder the roll-out of vaccines globally and domestically.
  • We anticipate BNM to adopt a wait-and-see approach and maintain the OPR at 1.75% for the time being, especially after the introduction of PERMAI stimulus package.

BNM Kept Its Statutory Reserve Requirement (SRR) at 2%

Bank Negara Malaysia kept its overnight policy rate (OPR) unchanged at 1.75% for the third consecutive Monetary Policy Committee (MPC) meeting since 4Q20 and at its first meeting of 2021. As a form of monetary policy easing, BNM will extend the flexibility for banking institutions to use MGS and MGII to meet the Statutory Reserve Requirement (SRR) compliance (extended from 31 May 2021 until 31 December 2022). The SRR was kept unchanged at 2%. Since 1Q20, the move by BNM to reduce the SRR ratio from 3% to 2% as well as allowing the flexibility to use MGS and MGII compliance has released close to RM46bn of liquidity into the banking system. The latest decision to extend the flexibility is to ensure sufficient liquidity to support financial intermediation activity.

In the latest MPC statement assessing the domestic economy, BNM cautioned that the recovery in GDP growth for 4Q20 (figures to be released on 11 February 2021), has been impacted following the reintroduction of containment measures amid the rise in cases during 4Q20. BNM anticipates 2020 growth to be near the lower end of the earlier forecast range of between -3.5% and -5.5%. As for 2021, although growth in the near term will likely be negatively affected by the reinstatement of the MCO 2.0, BNM anticipates the impact to be less dire compared to the previous MCO in 2020. BNM noted that economic growth is projected to improve from 2Q21 onwards led by a recovery in global demand, a rebound in public and private sector expenditure as well as an increase in production from existing and new manufacturing and mining facilities. In addition, the roll-out of vaccines which is anticipated to start by early March will also support sentiment. However, BNM cautioned that there are still downside risks to economic outlook, mainly from ongoing uncertainties surrounding the pandemic and likely obstacles which might hinder the roll-out of vaccines globally and domestically. On the inflation front, BNM guided that it maintains its projection of negative headline inflation in 2020 amid low global oil prices. However, headline inflation is expected to average higher but be manageable in 2021, within its projection range of between 1.0-3.0% led by higher global oil prices.

Going forward, we believe the decision on OPR direction will depend on the duration of enforcement of MCO due to uncertainties surrounding the domestic Covid-19 situation, and its impact on the economy from containment measures. We believe the recent announcement of the inclusion of five more states under MCO from January 22nd , with the whole of Malaysia except for Sarawak under stricter containment measures compared to the initial five states and Federal Territories (Penang, Selangor, Melaka, Johor, Sabah, KL, Labuan and Putrajaya), will place a drag on economic activities, especially in 1Q21. However, we believe BNM will likely adopt a wait-and-see approach before deciding on its next course of action. At the moment, we maintain our view that BNM will likely keep its OPR at 1.75% throughout 2021. After the introduction of the RM15bn PERMAI stimulus package, we believe there is possibility of further fiscal stimulus measures being introduced, especially if the MCO gets extended beyond two weeks, and the concerns of possible deterioration in economic activity from softness in labour market conditions, shift in consumer spending patterns, as well as declining tourism-related sectors. Based on official estimates, the domestic economy suffered economic losses by an estimated RM600m per day during MCO 2.0, as compared to the previous losses of about RM2bn per day during MCO in 2Q20. However, we believe the RM15bn stimulus package and new direct fiscal injection will provide some support to the recovery in domestic economy.

Source: Affin Hwang Research - 21 Jan 2021

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