• Malaysia prioritizing overcoming Covid-19 pandemic with RM1.6bn allocation for MoH from PRIHATIN stimulus package

• Measures taken suggest the infection curve is flattening and performance statistics better than most ASEAN countries including certain developed nations in the world

• The pandemic shows it is important for the country to be self-reliant in the production of essential and critical medical goods during emergencies

• Post Covid-19 healthcare outlook is mixed depending on the respective subsectors. Glove makers are the clear winners. Buy Kossan (TP: RM6.60).

Combating Covid-19 pandemic

Overcoming Covid-19 pandemic is currently Malaysia’s top priority with a sum of RM1.6bn allocated for the Ministry of Health (MoH) from PRIHATIN stimulus package. Malaysia has opted for implementation of a country-wide lockdown, which started on 18th March 2020 and extended twice until 28th April 2020.

Control measures showing positive results

The measures taken to control the spread of Covid-19 appear to show signs that the infection curve is indeed flattening. Coordinated and proper management of the pandemic have led to good results in the detection, recovery and mortality rates of the country. Rate of infection has also been lowered from one person infecting 3.55 other individuals to just 1 other individual according to MoH. Malaysia’s performance statistics indicate that it is doing better than most ASEAN countries as well as some major developed nations around the globe.

Pandemic opens up new healthcare perspective and opportunities

The pandemic has taught governments around the world to be self-reliant and not to be dependent on only certain countries for supply of critical items, e.g. active pharmaceutical ingredients (API) needed in the production of medicines. Countries now realise the perils of sourcing components from any one country or region to avoid disruption in supply chain as exposed by the pandemic – the world is highly reliant on China for production supply. The Covid-19 has also opened up opportunities for companies to build on, e.g. producing critically needed personal protective equipment (PPE), in addition to closer examination and possible overhaul in the production/procurement system.

Post Covid-19 healthcare outlook is mixed

Malaysia’s healthcare sector has been thrusted into the limelight due to greater healthcare awareness derived from the Covid-19. The sector’s near to mid-term outlook is mixed, depending on the respective sub-sectors, in our opinion. Private hospitals earnings growth performance will see short-term negative impact due to a drop in patients traffic. The MCO period has seen deferment of non-emergency treatments as well as decline in healthcare tourism, which likely to affect hospitals’ revenue. We also expect drug companies to be affected by supply shortage, whilst medical equipment companies could see positive impact as output accelerates due to higher demand.

Rubber glove companies are the clear winners

Unabated and growing global cases of Covid-19 led to greater global glove demand. We estimate the sector to record stronger earnings growth of c.17% in 2020. We believe rubber glove stocks deserve further re-rating, hence staying Overweight on the sector premised on strong global demand, defensive nature of business as well as constant evolution activities. Kossan is our Top pick (BUY; RM 6.60)

Source: BIMB Securities Research - 20 Apr 2020