The Malaysian government decided to impose a stricter lockdown from 1 to 14 June, which Macquarie Equities Research (MQ Research) thinks will have a negative impact on the economy in the short term but expects further recovery as vaccination trend improves. As at 28 May, 2.8m doses of the vaccine had been administered with 1.8m people having received at least one dose.
MQ Research would use any knee-jerk reaction in the market to this announcement as a buying opportunity for reopening, digitalisation and export plays. Read on for an excerpt of MQ Research’s report dated 31 May and its top stock picks.
Lockdown for two weeks doesn’t change narrative
- The Malaysian government’s decision to impose a stricter lockdown from 1-14 June will have a negative impact on the economy in the short term but should not distract from the recovery trend as vaccination trends improve. The announcement on the evening of 28 May could lead to a knee-jerk reaction on the market, but MQ Research would use such a move as a buying opportunity. Essential services, manufacturers linked to food, healthcare, electronics, oil & gas, etc. are allowed to operate at 60% capacity (similar to MCO3.0+). The key, MQ Research believes, is that this lockdown will be for a limited period and more importantly vaccination trends are positive, thus keeping its opening-up narrative on track. Against this backdrop, MQ Research maintains its top picks, which are focused on opening up, digitalisation and the export sectors.
Impact
- Vaccinations including registrations rising. As at 28 May, 2.8m doses of the vaccine had been administered with 1.8m people having received at least one dose. The 14-day moving average of vaccinations is up 93% from 14 May at 62k, with a peak of 107k on 27 May and a target of 150k/day by June. There has also been a noticeable pick-up in registrations for the vaccines as case counts rise. This analyst has noted that friends and family who were taking a ‘wait and see’ attitude towards vaccination have registered for the vaccine in recent days as the fears of infection rise. The government has also announced the procurement of a further 12.8m doses of the Pfizer-BioNTech vaccine, bringing total doses of Covid vaccines procured to 44.8m – covering 70% of the population. Sinovac vaccine supplies are also ramping up.
- Lockdown impact mitigated. Manufacturers MQ Research has spoken to post-announcement point to the ability to rejig staff numbers – favouring production staff over admin, etc., to mitigate the impact on production. For companies already running full, MQ Research estimates the impact would be less than 2.5% of annual production at 60% utilisation. For other sectors, e.g. telcos, property, construction, retail etc, the reduced activity levels will impact 2Q results but MQ Research would expect a rebound post-lockdown to mitigate the impact on overall 2021 earnings.
- Banks – moratorium risks exist but likely to be muted. MQ Research thinks that the current targeted repayment assistance (TRA) framework should be flexible enough to accommodate incremental risks from the full lockdown. Thus, MQ Research expects the sensible policy decision would be to avoid another blanket moratorium, which led to almost ~RM1.6bn in modification losses to the banks in CY20. That said, MQ Research concedes the probability of blanket moratorium is non-zero. Ironically, the banks’ relatively strong earnings performance in 1Q21 may make them a bigger target.
Outlook
- As stated above, MQ Research would use any knee-jerk reaction in the market to this announcement as a buying opportunity for reopening, digitalisation and export plays as listed below:
Source: Macquarie Research - 31 May 2021