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Author: kltrader   |   Latest post: Tue, 10 Dec 2019, 10:08 AM

 

Malaysia Strategy – Time to Deliver on the Hope

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In a research report dated Friday (1 Nov), Macquarie Equities Research (MQ Research) shared its optimism that the Malaysian economy is picking up despite it remaining underweight with Malaysia regionally. MQ Research is also mindful of how a change in Malaysian premiership could spur concerns over leadership changes at various government-linked companies (GLC). MQ Research’s top picks include Telekom, IHH, Top Glove and others. Read on for more.

Opportunities in the rough

Having spent the better part of 2018 and 2019 seemingly in hibernation, the Malaysian government’s participation in the economy is set to pick up from its lowest growth levels in 15 years (2020E +1.4% from -1.3%) and kick-start investments by the private sector. MQ Research believes this, coupled with ongoing reform efforts aimed at improving transparency and efficiency, will be key thematics for stock picking in Malaysia into 2020. Global macro headwinds and a likely change in leadership remain key risks, while an increasing focus on environmental, social and governance (ESG) investing will provide new twists. While MQ Research remains underweight Malaysia regionally, MQ Research sees stock picking providing outperformance vs MQ Research’s end-20E KLCI target of 1731.

Return of the government

An expansionary Budget 2020, recent announcements around the RM22bn National Fibrerisation and Connectivity Plan (NFCP) and anecdotal evidence of the government procurement machine restarting again, suggest the newsflow the market has long desired may now be upon us. In addition to nameplate projects such as the East Coast Rail Link (ECRL), Penang Transport Master Plan (PTMP) and Mass Rapit Transit (MRT3), MQ Research expects increased newsflow on water related and East Malaysian infrastructure projects to spur the construction sector – benefiting Gamuda and Ranhill. A ramp up in Petronas’ spend also brings further respite to oil & gas players. The uptick in activity should also bode well for small-medium enterprises (SME) which make up 82% of the economy and provide the banking sector (and CIMB) with an uptick in corporate lending which are at cycle lows of <3%.

Policy reforms over company reforms

Going into 2020 MQ Research prefers plays on policy reforms over company level reforms. Increased policy transparency in electricity and transport (airports) sectors pave the way for a rerating of Macquarie Marquee Ideas Tenaga and Malaysia Airports. Restructuring of the water sector meanwhile should spur greater investments in the space benefiting HSS and Ranhill. In telecoms, allowing the setting up of a national infraco could pave the way for improved sector returns, with Telekom Malaysia MQ Research’s key pick. While MQ Research does believe the ongoing GLC reform agenda will drive improvements overtime, MQ Research is mindful of how a change in (Malaysian) premiership could spur concerns over leadership changes at various GLCs, delaying progress on this front.

Global leaders and thematic plays to do well

MQ Research sees companies with global leadership/thematics behind them and also beneficiaries of a weak RM continuing to do well into 2020. In this respect IHH (regional healthcare), Top Glove (gloves) and PetChem (lowest cost producer), make it to MQ Research’s top picks list. Rising crude palm oil prices in 2020, also provides a lift to rural economies and drive a revaluation of plantations with Sime Plantations being MQ Research’s pick.
 

Source: Macquarie Research - 4 Nov 2019

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