Macquarie Equities Research (MQ Research) examines market multiples going back to the Global Financial Crisis (GFC) and determined that the KLCI is trading at 1.1x price to book, below GFC levels of 1.4x. With Malaysia currently oversold, MQ Research believes that the Covid pandemic is transient and that investors should position for a rebound.

Event

• Following up on MQ Research’s earlier report (daily highlights on 16 Mar), MQ Research examines market multiples going back to the GFC and find that Malaysia is now trading at below GFC level price to book (P/B) multiples based on consensus data for the market. Price to earnings ratio (PER) multiples are almost there too, but MQ Research notes that the developing Covid issue will lead to earnings downgrades in coming weeks. While negative newsflow from Covid coupled with earnings downgrades due to the government’s movement control order (MCO) may cap near-term upside, MQ Research believes investors looking out 3-6 months should look to weakness as a buying opportunity.
• Additionally, MQ Research notes Viktor Shvets’ report around fundsflow data which points to Malaysia, Korea and Thailand being oversold. For Malaysia, the 12-month foreign outflow as a percentage of total market cap has hit 1%, with markets typically delivering a strong (~20%+) performance divergence in the subsequent period.

Outlook

• MQ Research believes that the Covid pandemic is transient and as Malaysia comes out of the MCO, the government will most likely announce further stimulus measures. MQ Research continues to favour global plays such as glove producers (TOPG, HART), plantations (SDPL) and PCHEM. Improved Covid newsflow should also lead to a rebound in MAHB. GAM and ECON are MQ Research’s top picks for increased infra activity. For those seeking bombed out defensives, MQ Research likes MISC, TNB and PBK. MQ Research likes CIMB (prev MAY) and RHBBANK for a post Covid environment but note near-term pressures from rate cuts and credit costs.

Source: Macquarie Research - 23 Mar 2020