Macquarie Equities Research (MQ Research) summarized its conference with Datuk Michael Kang, President of SME Association of Malaysia – in summary, small and medium sized enterprises (SME) showed positive trends after the lifting of the movement control order (MCO) in May, though effects remain to be seen from the recent conditional MCO. All eyes are now back on the Budget 2021, to be announced today.

Event

• MQ Research hosted Datuk Michael Kang, President of SME Association of Malaysia, on a conference on 4 November, to get an update on the status of SMEs in Malaysia. In summary, SMEs had shown positive trends post the lifting of the MCO in May, with about 50% almost back to pre-Covid levels in terms of business activity/revenues and 30% almost back to 50% of pre-Covid levels. The government’s fiscal stimulus, wage subsidies and the loan moratorium all helped. However, the introduction of the latest CMCO (conditional movement control order) since mid-October could set the recovery back somewhat and lead to new business failures especially in the retail, F&B and tourism sectors. All eyes are now back on Budget 2021 (6 November) for further measures to help the SMEs to weather the storm. MQ Research believes a people friendly Budget due on Friday undoubtedly focus on this group and provide a respite for SMEs which contributed 39% of the Malaysian gross domestic product (GDP) in 2019.

Impact

• Government efforts helped, hoping for more. The loan moratorium which expired in September and the special relief fund (SRF) loans were seen as a big help for SMEs and Datuk Michael felt an extension of these would certainly go long way in keeping SMEs afloat. According to him, many SMEs have struggled to get moratoriums extended since October, with those in the tourism sector in particular hardest hit. Peer-to-peer (P2P) lending awareness is still low but high rates are also seen as a deterrent for anything outside working capital requirements. The association is hoping for targeted measures in Budget 2021 to aid the SMEs including more SRF loans, wage subsidies and for any future movement restrictions to allow businesses to continue.
• SMEs digitalising. Datuk Michael estimated that about 50% of SMEs were looking to digitalise their operations to increase efficiencies and boost revenues, with current adoption c.20%. The RM500m government grant for digitalisation announced in Budget 2020 was a welcome boost, but lengthy (and tedious) approval processes have meant <500 SMEs out of the 20k targeted to receive RM100m in 2020 have actually received approvals. Limited broadband coverage was also touted as an impediment – something the MCMC’s Jendela program is aiming to address.
• Impact of the CMCO. It is clear that the CMCO has had a dampening impact on the economy and survival of SMEs. Some banks are likely to increase provision guidance on the back of the CMCO, although the final impact will depend on its duration and impact of further stimulus measures.

Outlook

• MQ Research expects the 2021 Budget to be people friendly with increased handouts to the B40 and M40 households. Measures to support SMEs do appear to be on the cards to ensure that the economy can rebound post-Covid. MQ Research maintains its constructive view of the Malaysian market as the headwinds of 2020 turn into tailwinds for 2021. Politics is a headwind which will eventually turn in mid-21 in MQ Research’s view. In the meantime, MQ Research’s top picks continue to favor exporters/global thematics (SDPL, PCHEM), digitalisation (T, MAXIS), selected banks (RHBBANK, CIMB) and reopening plays (GENM, MAHB).

Source: Macquarie Research - 6 Nov 2020