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Author: kltrader   |   Latest post: Thu, 6 May 2021, 9:57 AM

 

Malaysia Strategy: 4Q20 Not Bad But 2021/22 Growth Pivot Likely

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Despite the reintroduction of the movement control order (MCO) from late October 2020, a majority of Macquarie Equities Research’s (MQ Research) coverage have reported 4Q20 results met or beat estimates. Although 1Q21 will be impacted by the MCO, outlook remains positive and MQ Research leaves its end-2021 FBM KLCI target unchanged at 1,780.

Read on for an excerpt of MQ Research’s report (10 Mar) and its top stock picks, which include banks, digital and recovery plays, among others.

Improving consumer/business confidence to drive a rerating

  • Despite the reintroduction of movement restrictions from late October 2020, 66% of MQ Research’s coverage companies that have reported 4Q20 results met or beat estimates. The extended movement restrictions for key states left companies generally providing muted guidance for 2021. Nonetheless, with vaccination of the populace underway (target completion 1Q22), MQ Research believes the market will look past what is likely to be a slew of consensus downgrades to 2021E estimates. With 22E estimates likely to be less affected, market earnings per share (EPS) estimates are likely to show positive growth into 22E from -2% currently. Improving consumer and business confidence, MQ Research believes, will spur a further rerating of opening-up plays including banks, exporters, oil & gas (O&G), gaming and tourism. The recently announced MyDigital Blueprint will provide rerating catalysts for digitalisation plays, while the likely General Election in 3Q21 will remove an element of uncertainty shrouding the market and provide opportunities in the construction sector from 4Q21. MQ Research leaves its end-21E KLCI target unchanged at 1,780.

Plantations, O&G and banks led the beats

  • Higher crude palm oil (CPO) price realisations helped the plantation sector deliver the highest % of beats in 4Q20, while low expectations for the banking and O&G sectors provided room for positive surprises. Property, consumer and gaming, however, led the misses as the extended restrictions had a worse-than-expected outcome. Consumer banks (PBK, HLBK) emerged with the most sure-footed operational and asset quality outlook. While the low quality banks have the most yoy upside vs a low base 2020, the guidance was still relatively soft due to the MCO2.0 implications on credit costs that has sent rescheduling and restructuring (R&R) rates up sharply for AmBank, RHB and Maybank. Other corporates were generally muted in their guidance given the ongoing restrictions, but MQ Research expects the narrative to improve as vaccination rates rise and consumer confidence improves.
  • The 2021/2022 twist. The extended movement restrictions in 1Q21 will, in MQ Research’s view, lead to consensus downgrades for 21E but with 22E likely held. This should see 22E EPS growth turn positive from the current -2% (MQ -3%).

Maintain Top Picks

  • MQ Research’s top picks remain unchanged (see Fig 6 below), with a preference for opening up plays (GENM, MAHB), consumer banks (RHBBANK, CIMB), digitalisation plays (T, MAXIS, MYEG, GHLS) and exporters (KLK, PCHEM). Near term, oil prices’ buoyancy is likely to spur outperformance of O&G names although MQ Research notes a tepid Petronas capex cycle weighing on earnings upside. Tech names are likely to remain in the spotlight, but investors should look to rotate into opening up plays/cyclicals as valuations come under increased scrutiny.

Source: Macquarie Research - 10 Mar 2021

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