Malaysia’s movement control order (MCO) has been extended another two weeks to 28 April 2020 as the world continues to battle Covid-19. In the latest extension, some segments of the economy have been allowed to return to work, which is positive for the economy and the sectors involved.

Event

• The Prime Minister (PM) announced today that Malaysia would extend the mandatory control order for another two weeks but with some segments of the economy allowed to return to work. The latter is certainly positive for the economy and the sectors involved. In the listed space, construction and industrial companies appear to be the biggest beneficiaries, subject to them obtaining approvals from the government.

Impact

• A positive step. This move to extend the MCO for at least another 14 days is aimed at curtailing the spread of the Covid virus. New positive cases have started to slow and recoveries are on the rise, with a net reduction in active cases for three consecutive days now. The PM did not rule out the MCO being extended again.
• Construction set to benefit. The government in allowing certain businesses to restart is hoping to minimise the impact on the economy by focusing on what it deems to be high-impact segments as well as those linked to the global supply chain. Certain construction projects will be allowed to resume subject to some conditions. Supporting service providers will also be allowed to resume. MQ Research’s top picks in the construction sector are Gamuda and Econpile.
• Industrial, autos and others too. Other segments allowed to resume, subject to approvals, include: auto manufacturing (for export only), components and servicing, producers of machinery and equipment, aerospace, research and development, legal services, traditional medicine practitioners, some retail outlets (electrical and electronics, opticians), barbers and laundries.

Outlook

• MQ Research remains constructive on the Malaysian market. Valuations at 1.2x price to book (PB) are below global financial crisis (GFC) levels (1.4x), and MQ Research sees value in the banks (CIMB, RHBBANK, PBK) and defensives such as Tenaga which also has a capital management angle. Exporters, e.g., gloves (TOPG, HART), PCHEM and Sime Plantations, also stand out. MQ Research would look to accumulate Gamuda and ECON for the pick-up in infra activity post Covid. Malaysia Airports meanwhile is a play on a return in travel post Covid, with the added likelihood of an improved regulatory framework providing valuation upside in the medium term.

Source: Macquarie Research - 13 Apr 2020