Malaysia’s R-naught has stayed above 1.0 for the most of Apr, suggesting heightened case resurgence risk. With vaccine deliveries back loaded to 2H, relying on this may not be sufficient to arrest near term ascending cases. While the PM has committed to avoid another blanket MCO, this may come as a trade off in controlling the virus. Our 2021 GDP forecast of 5.0% is lower than BNM’s 6.0-7.5% range, reflecting the perils of an “on/off” economy. Maintain end-2021 KLCI target at 1,740 but near term sentiment will be hit from the resurgence.

The resurgence. To recap, domestic daily Covid-19 cases from the “3rd Wave” peaked in late-Jan (c.5.7k cases) and subsequently declined by as much as -84% to below 1k by late-Mar. However, cases have been steadily rising since then with daily numbers now exceeding the 2k mark consecutively since 15 Apr. Notable contributors to the resurgence are Sarawak, Kelantan and Klang Valley.

Uncomforting R-naught. During the height of the “3rd Wave”, Malaysia’s R-naught (a measure of the virus’ infectivity) chalked above 1.0 for the entire month. Consequently, daily cases soared by as much as 177% in Jan (i.e. from 2k on 1 Jan to 5.7k on 30 Jan). Bearing in mind, this drastic rise happened despite MCO2.0 being implemented on 13 Jan. Fast forward to current, Malaysia’s R-naught has been registering above 1.0 for the most of Apr (latest reading on 21 Apr: 1.15). Adding to discomfort is the fact that the highest R-naught reading this month (17 Apr: 1.19) surpassed Jan’s high (16 Jan: 1.17). Intuitively, unless drastic structural measures are taken to reduce the R-naught, it wouldn’t be too farfetched to envision the trajectory of cases over the next 1 month mirroring that of Jan.

Vaccination at a nascent stage. As of 21 Apr, Malaysia has administered 1.2m vaccine doses (1st dose: 757k, 2nd dose: 474k). This implies that 2.3% of Malaysians have received at least 1 dose compared to its herd immunity target of 80% by end- 2021. Based on the timeline disclosed by JKJAV (Figure #3), vaccine deliveries are expected to only gain traction from June onwards, implying that relying on vaccines alone may not be sufficient to arrest near term case resurgence. Vaccine registrations on MySejahtera have been slowly but steadily climbing and now stands at 9.1m or 37.7% of population. Like most nations, the key challenge on this front remains addressing the notorious anti-vaxxer sentiment.

In between a rock and a hard place. PM Tan Sri Muhyiddin Yassin has indicated (during last month’s PEMERKASA stimulus announcement) the government’s commitment to try and avoid another blanket MCO in favour of a more targeted approach. We empathise with the government as it faces a trade-off between economics and pandemic control. Interestingly, Kelantan is back to MCO.

Choppy ride ahead. Our 2021 GDP forecast of 5.0% (2020: -5.6%) is lower than BNM’s range of 6.0-7.5% (point estimate: 7.0%), reflecting the perils of an “on/off” economy caused by the virus. While we maintain our end-2021 KLCI target at 1,740 (17.3x 5Y mean PE on 2021 EPS), we are cognizant that near term sentiment may take a hit following the case resurgence. However, we maintain our view that 2021 will still be a recovery year, particularly in the 2H when vaccine deliveries pick up significantly. Sectorial wise, with cases on the rise, it is unlikely that interstate travel will be allowed anytime soon, negatively impacting aviation and tourism (Genting and REITs with hotels). The resurgence may also discourage people from leaving home to reduce contagion risk, potentially posing a negative for brewers, consumer staples , healthcare (hospitals), property, retail and REITs (mall based). This could be positive for logistics, specifically for courier given a greater substitution to online shopping. We also reckon sentiment would be positive for gloves, but this is due more to the resurgence in global cases rather than domestic.

Source: Hong Leong Investment Bank Research - 23 Apr 2021