Summary

• We maintain our end-2021 FBM KLCI target of 1,695 pts based on 16x our 2021F earnings projection (+56.7%). We are optimistic that the world at large shall enter into the late stage of the pandemic in 2H21, with more countries attaining herd immunity against Covid-19. A synchronised global recovery is almost a foregone conclusion underpinned by the reopening of economies and international borders. On the flip side, it also means various relief and reprieve measures introduced during the pandemic will have to be discontinued.

• Based on this premise, the key thrusts of our investment strategy in 2H21 are as follows:

1. Globally, there is limited room for further liquidity-driven price appreciation across asset classes as it has become increasingly difficult to justify fiscal and monetary policies being put in an overdrive position as economies emerge from the pandemic;
2. It is our base-case assumption that Malaysia shall reach herd immunity against Covid-19 before the year is out. As such, the underperformance of the local market in 1H21 makes it an even more attractive recovery play in 2H21; and
3. On the flip side, the end of the pandemic also means that the political genie could no longer be kept in the bottle. In the event of the dissolution of parliament ushering in the 15th general election (GE15), investors are likely to stay sidelined until the dust settles.

• We will not be perturbed by any further extension to the nationwide lockdown that started on 1 June 2021 as we believe it is the right thing to do to break the chain of the Covid-19 spread. Similarly, we are not overly concerned about the seemingly stubbornly high new daily infections, which shall eventually come down thanks to the lockdown and the accelerating vaccine rollout.

• While clarity is still lacking with regards to the extent of the irreversible damage the pandemic has inflicted on businesses, and hence asset quality of banks, we take comfort that banks have started to make pre-emptive provisions in the form of management overlays, in addition to provisions based on changes to macroeconomic factors.

• Other key sectors that are poised to benefit from the recovery are power (increased demand for electricity, particularly, from the commercial and industrial segments), oil & gas (higher crude oil prices), seaport (higher throughput on further recovery in global trade), airport (the eventual reopening of international borders), consumer (cash handouts and recovery in the job market to sustain consumption) and REIT (reduced rental rebates, recovery in footfall and occupancy). Meanwhile, while the availability of effective vaccines has greatly brightened the recovery prospects of the air travel sector, we remain mindful of the need for airlines to recapitalise their balance sheet after massive losses during the pandemic.

• Sector-wise, we are OVERWEIGHT on automobile, cement, consumer, electronics manufacturing services (EMS), financial, media, oil & gas, power, REIT, telco and transport & logistics. Our top picks reflect names that are likely to benefit from the recovery of the domestic and global economies, i.e. Maybank, Tenaga Nasional, CIMB Group, Telekom Malaysia, RHB Bank, Westports, Malaysia Airports, Astro Malaysia, Hibiscus Petroleum and Perak Transit.

Source: AmInvest Research - 30 Jun 2021