• Stocks rose from depths in an impressive April. Global markets were higher in April from their March ebb as coronavirus pandemic seen peaking. The KLCI posted a rise of 4.2% for the month, but markedly eclipsed by gains made by other local indices (Table 1). Net foreign outflow remained substantial at RM2.7bn although this is half the amount recorded in March (-RM5.5bn). The striking FBM Mid70 and Small Cap rise was reinforced by another substantial net retail investors’ participation of RM1.1bn (March: +RM1.4bn).

• MCO easing is earlier than expected, backed by declining infections. We had earlier anticipated a full MCO to last until end-May following the 3rd extension announced on 23 April. The PM had provided little hint for an exit plan amid narrative that restrictions were needed to ensure decline in new infections. We think the consistently low number of cases the past 2 weeks, and appeals from various business groups and economic impact, had influenced the decision to lift many restrictions from 4 May. We expect most states to comply with the easing after 12 May.

• Expect “revenge spending” to assist economy breathes life. All in, we are positive on the MCO easing, yet cautious on risk of spike in new infections. We think benefits to the economy will come in swiftly in some areas, ie food and retail spending. Media reports showed demand in China for travel, cosmetics, and food surged by >50% in recent weeks as workers returned to offices and factories, and the government started easing movement restrictions. Following almost 2 months of strict lockdowns, we expect Malaysian consumers to release pent-up spending, aided by improved cashflows from loan moratorium, 4% EPF cut and Prihatin cash aid to households.

• Boost to stocks which are seeing pockets of recovery. In our earlier report, we wrote that stocks may have seen their worst level in March (“Recession Playbook”:13 April). Our initial assumptions for KLCI performance were based on infection curve to flatten by May and economy/earnings hit hard for 2 quarters. We now see KLCI at 1,500, valuing the index at P/B of 1.5x and PE of 15x on next year’s earnings. Our high conviction buys are “digital theme” GHL (Buy, TP RM2.15), MYEG (TP RM1.70) and healthcare Kossan (TP RM6.60). We also favour “commodity-related” theme selectively, Yinson (TP RM7.70), Lotte Chem (TP RM2.20), and KLK (TP RM22.80).

Source: BIMB Securities Research - 4 May 2020