Malaysia’s headline unemployment in September improved to 4.51% (versus 4.64% in August), the lowest level since the start of the pandemic. In its report dated 18 November, Macquarie Equities Research (MQ Research) says long term unemployment remains stable, with rehiring skewed to short term unemployed, while manufacturing led rehiring, with a skew to local and semi-skilled workers. MQ Research expects the positive momentum to persist to at least 1Q22 and continues to prefer consumer banks.

3Q21 Undone

• Headline unemployment rates declined further to 4.51% - the lowest level since the start of the pandemic, effectively unwinding the impact of the third movement control order (MCO3.0). Gross employment saw +87k hires and gross excess unemployed persons is now around ~200k.
• Long term (LT) unemployment (>6 months unemployed) remained stable in September, with the re-hiring skewed to the short term (ST) unemployed. There was also a marginal improvement in time-based unemployment in 3Q22 (workers working <30 hours/week but able to work more), that has helped trim overall unemployment. MQ Research’s latest survey in October saw a 6ppt decrease in respondents that flagged a loss of income (to 33%).
• Unemployment remains heavily skewed to younger workers, with a 13.9% unemployment rate. Younger workers (15-24 year-olds) also continued to suffer the highest rates (+20% year-to-date (YTD)), of skill-related underemployment (tertiary educated but working semi/low-skilled jobs) despite an overall -1% improvement YTD, driven by older workers.

Manufacturing, Construction Lead Hiring

• Manufacturing underpinned the bulk of hiring in 3Q21, as the government eased headcount curtailment for the sector. The sector saw filled jobs improve +1.3% quarter-on-quarter (q/q) (vs overall +0.7%). Manufacturing only accounts for 27% of total filled jobs but makes up 57% of vacancies and 44% of new job listings. Overall, this resulted in a skew to low-skilled hiring during the quarter.
• MQ Research expects to see pandemic hit services sectors like food and beverage (F&B) and retail drive hiring in the coming months. Retail mobility indicators suggest recovery to 85%-90% of pre-pandemic levels on the back of robust consumer pent-up demand.

Positive for Consumer Banking

• Overall, the continued rapid pace of rehiring bodes well for banks’ asset quality. Considering mobility restrictions were still partially enforced in September (October/November has seen more easing), this encouragingly is likely to persist going forward. The trajectory affirms MQ Research’s preference for consumer banks over non-consumer banks, that will benefit the most from a recovering labour market.
• MQ Research’s top picks are RHB, Hong Leong and Public; see excerpt of the report: Malaysia Banks - 3Q21 Preview: Signal to noise is lower.

12-month Target Price Methodology

• RHBBANK MK: RM6.35 based on a Price to Book methodology
• HLBK MK: RM21.75 based on a Price to Book methodology
• PBK MK: RM4.45 based on a Price to Book methodology

Source: Macquarie Research - 18 Nov 2021