Yesterday, PM Muhyiddin announced the National Recovery Plan, broadly detailing how movement restrictions will be lifted in 4 phases from now till Nov. The timeline of over 5 months is longer than last year’s transition from MCO to RMCO (2.75 months). While the market may see near term weakness owing to the longer reopening process, this more structured plan with objective thresholds should help control the pandemic in a more sustainable matter. Maintain our KLCI target at 1,660 and 2021 GDP at 4.0%.

NEWSBREAK

Yesterday, PM Tan Sri Muhyiddin Yassin announced Malaysia’s National Recovery Plan (NRP) which broadly detailed how movement restrictions will be lifted in phases according to 3 key thresholds: (i) daily Covid-19 cases, (ii) healthcare system capacity judging from ICU bed utilisation and (iii) fully vaccinated rate. The broad details of each phase are shown in the Appendix.

HLIB’s VIEW

Economic view. We maintain our 2021 GDP forecast at 4.0% based on the assumption that the country’s operating capacity is at 75% of GDP as more sectors are allowed to open under strict SOPs. Consequently, the estimated daily loss amounts to ~RM1.0bn. Based on latest Google Mobility data, the decline in mobility thus far has not been as drastic compared to MCO1.0 (mid-Mar to end-Apr 2020). For example, mobility in retail & recreation recorded a -77.3% decline from baseline while FMCO registered contraction of -59.6% from baseline. As of 11 June, SOCSO loss of employment amounted to 2,612 (May: 3,724). Nevertheless, this figure is anticipated to rise further to reflect the current FMCO restrictions. Despite the downside risk to our GDP forecast, we also note supportive factors such as recovering global demand from major economies and ramp-up in vaccination rates in Malaysia that will provide some respite to the economy. We maintain our expectation for BNM to maintain the OPR at 1.75% in 2021.

Market view. The timeline of the transition from Phase 1 to 4 totalling 5 months is longer than what we expected. For comparison, last year’s migration from MCO (started 18 Mar 2020) to CMCO (4 May 2020) to RMCO (10 June 2020) took a total of 2.75 months. Nonetheless, the longer duration of this transition is understandable considering that cases are now much higher vs last year. While the market may see some near term weakness owing to this longer reopening transition, we reckon that this more structured plan with objective thresholds should help control the pandemic in a more sustainable manner. Coupled with an expected significant increase in vaccination rates in 2H21 (due to back loaded supply deliveries), we are hopeful for a more permanent return to normalcy by year end. On a brighter note, businesses should experience a gradual recovery from July onwards (Phase 2) owing to increased headcount capacity to 80% from 60% and expansion of the “positive list” permitted to operate. We maintain our end-2021 KLCI target at 1,660 (16.5x CY21 PE; -0.5SD below 5Y mean).

Sectorial impact. Notable sectorial impact from the NRP include: (i) cement will be allowed to operate in Phase 2, (ii) furniture shops are still not allowed to open in Phase 2 but there was no mention about furniture manufacturers for export (currently not allowed to operate), (iii) pubs will remain closed in Phase 3 (can only reopen in Phase 4); bad for brewers with no “out of home” boozing and (iv) domestic tourism will only be allowed in Phase 4; continued dry spell for hotels (REITs) till then.

Source: Hong Leong Investment Bank Research - 16 Jun 2021