Highlights

Post our report on the Glove sector entitled “Coronavirus Joins the Party” dated 8 May 2013, the Coronavirus in the Middle East has now spread to France (two confirm cases) and Germany (only one).

We believe it will be well contained given experiences learned from previous pandemics.

However, huge pilgrims to the Kingdom could raise concerns and affect sentiment, especially with the concurrent H7N9.

This report attempts to ascertain potential impact (based on previous incidents) if situation worsen.

Impact

• FBM KLCI and economy – no apparent impact.
• Tourist arrival – negative only when WHO issued travel alert.
• Glove – no spike in demand but share prices reacted positively during SARS, H5N1 and H1N1.
• Healthcare – will generally benefit but share price only spike during H1N1 (huge number of confirmed cases).
• Airlines – plunge in international air travel and share prices only when WHO issued travel alert (SARS).
• Gaming (Casino) – no apparent impact on visitors and revenue while share price plunge only when WHO issued travel alert.

Summary

Glove sector will be the prime beneficiary. Despite no apparent spike in demand, share prices tend to react positive to pandemic. We believe this is sentiment driven.

Healthcare sector will be secondary beneficiary if there are widespread cases.

Airlines and Gaming (Casino) will suffer (the latter only in terms of share price) if WHO issue travel alert. However, share price recovery is swift (while the pandemic was still in effect) and fully recovered by the end of it.

Poultry is the worst with different stocks suffering plunge in share prices at various magnitude and some took longer time to recover. Exception is QL.

Action

• Regardless of whether it will worsen or not, Kossan (BUY, TP: RM4.75), Hartelega (BUY, TP: RM6.37) and Top Glove (TRADING BUY, TP: RM6.91).
• If reported cases increase significantly, Pharmaniaga (BUY, TP: RM9.17).
• If situation worsen and WHO issue travel alert, GenM (BUY, TP: RM4.10) and MAHB (BUY, TP: RM6.80) on dips.

Source: Hong Leong Investment Bank Research - 13 May 2013