Macquarie Equities Research (MQ Research) released a report on Tuesday (11 Feb) on their meet-up with investors in Europe and Singapore, with investors generally receptive to companies with global competitive advantages eg glove and CPO counters. MQ Research maintains their view that a pick-up in activity levels propelled by the Malaysian government will drive interest in Malaysia.

Conclusion

• MQ Research met investors in Europe (EU) and Singapore and found investors to be, unsurprisingly underweight Malaysia. Lack of growth, policy and political uncertainty were key reasons for this underweight position. However, despite the negativity towards Malaysian equities, investors were generally receptive to companies with global competitive advantages eg glove producers, crude palm oil (CPO) names (environmental, social, and governance (ESG) rules permitting) and banks whose valuations are compelling vs global peers. Those with more focused mandates were more open to bombed-out names and plays on a recovery in newsflow supported by macro data.

Impact

• Growth, policy and politics key concerns. Investors that MQ Research met in Europe generally had zero direct exposure in Malaysia with some using trackers, eg exchange traded funds (ETF), with no clear trend in the names for those with direct exposure. Concerns over the lack of policy direction and the uncertainties around leadership, have kept investors on the sidelines. Added to this was the lack of growth. Increasing focus on ESG has led to selling in plantations and Tenaga.

• Interest in global leaders. Several investors felt that they had missed the rally in glove names but agreed that any pullback presented an opportunity to invest in the staples of the healthcare sector, with Top Glove drawing the most interest. Sime Plantations drew interest on rising CPO prices although in some instances, there were concerns on whether it would pass internal ESG rules.

• Bombed-out names. Malaysia Airports Holdings (MAHB) and Tenaga drew interest for those seeking bombed-out names. MAHB’s pullback to levels before the Regulated Asset Base (RAB) model were first mooted did draw interest especially as most saw the coronavirus as transient. The potential capital management and physical break up of Tenaga (regulated and non-regulated) received good interest. The latter was seen essential for funds with ESG mandates to invest in Tenaga. British American Tobacco (BAT), which has declined from its peak, was also watched as a play on an improved government apparatus stemming illicit market share.

• Banks – attractive vs global peers. Attractive P/B multiples and dividend yields vs global peers did illicit interest in the Malaysian banks amongst EU investors, who also saw banks as a proxy to the rebound in activity levels.

• Construction – for rebound in activity. For those with more focused mandates, there was interest in plays on the pickup in government activity with Gamuda receiving the greatest interest. Interestingly, investors were also willing to consider names such as Econpile despite its US$220m market cap.

Outlook

• MQ Research maintains their view that a pick-up in activity levels spurred by the government will drive interest in Malaysia, with the leadership transition unlikely to shift policy direction.

Source: Macquarie Research - 12 Feb 2020