This article first appeared in The Edge Malaysia Weekly on March 15, 2021 - March 21, 2021

A year after the outbreak of Covid-19, pandemic losers may gradually be transformed into winners with the economy poised to return to positive growth on the back of optimism over the vaccine programmes being rolled out around the world.

Will pandemic winners such as the glove and technology players continue to prosper? Will the tourism, retail, hospitality and manufacturing industries as well as small and medium enterprises (SMEs) move away from the dire conditions brought on by Covid-19 anytime soon?

For now, although the prices of glove stocks have eased from last year’s peaks, the super earnings cycle persists. Top Glove Corp Bhd, the world’s largest glove maker, recorded a new peak in its quarterly performance, with its net profit rising 20.76% quarter on quarter (q-o-q) to RM2.87 billion for the three months ended Feb 28, from RM2.38 billion in the preceding quarter. Similarly, Supermax Corp Bhd’s net earnings jumped 34% q-o-q to RM1.06 billion for its 2Q ended Dec 31, 2020.

Nonetheless, analysts have trimmed their target prices for glove stocks as sentiment towards the industry has weakened considerably, owing partly to concerns that normalised demand will weigh on average selling prices.

In contrast, high-flying technology stocks remain the top picks for the year, riding on the digital transformation taking place globally. Just a few weeks ago, Prime Minister Tan Sri Muhyiddin Yassin launched the MyDIGITAL initiative that is touted to be the new driver of Malaysia’s economic growth.

Kenanga Research head Koh Huat Soon says the growth story of the technology sector is very appealing, along with a robust pipeline of orders. “It’s unlike gloves, where there is a debate going on over the sustainability of demand. The digital economy is a very appealing investment theme as there are a lot of upsides and benefits to be reaped by exploiting the digital medium. It is a new way of doing business and consuming, which has not been fully capitalised.

“It will definitely benefit tech-related stocks, riding on the work-from-home culture and schoolchildren having to have smart devices. It has also led to a shortage of semiconductors. We are talking about 5G and digital communications that are getting more pervasive.”

While the retail sector has been reeling from the onslaught of the pandemic, players involved in household essentials and groceries have benefited on the whole. For example, a number of grocery outlets charted record sales as Malaysians were forced to stay at home for long periods following the imposition of the Movement Control Order (MCO).

Not one to let weak market sentiment halt its ambitions, Mr DIY Group (M) Bhd continued to expand at tearaway speed by opening 30 new stores last July. The home improvement chain store operator posted a 19% year-on-year growth in net profit to RM108.27 million for its 4QFY2020 ended Dec 31. Its share price has more than doubled since it was listed in October last year.

Apparel retailer Uniqlo was another player not sitting still. Last December, the Japanese brand opened its first roadside store measuring 15,100 sq ft in Bandar Sri Damansara, Petaling Jaya.

Not everyone was as fortunate. A fair number of bricks-and-mortar retailers bore the brunt of cautious consumer spending, among them 162-year-old Robinsons, which shut its remaining four stores in Malaysia and Singapore.

Other major brands that did the same included Hong Kong-listed fashion distributor Esprit Holdings, NYX Cosmetics and Speedy Video Distributors Sdn Bhd, which shuttered all of their stores in Malaysia. MPH Bookstores closed a few outlets in the country.

There were also casualties among cinema operators, with MBO Cinemas recently announcing the sale of most of its assets to PPB Group Bhd’s GSC, the largest cinema chain operator in Malaysia.

Retail Group Malaysia (RGM) managing director Tan Hai Hsin says the structural change in the retail sector had already begun since the first MCO last year, forcing many retailers to pay attention to online shopping platforms. “After the first MCO was lifted, they invested more effort and money in this technology. Online shopping has become another major channel of distribution for retail goods and services in Malaysia,” he tells The Edge.

“Retailing today is omni-channel. Traditional retailers cannot rely solely on physical stores to grow.”

Tan expects retail sales to be in negative territory in 1Q2021 as the second MCO, imposed in January this year, led to a drastic drop in shopping traffic. This is a continuation of last year’s dismal performance, where retail sales contracted 16.3% — the worst in the past two decades. “Foreign tourist arrivals are unlikely until the end of the year. Thus, retail spending from foreign tourists will be insignificant this year,” he observes.

In the aviation sector, the players are pinning their hopes on the implementation of a health passport and the reopening of borders to revive global tourism. However, as the vaccine rollout taking place around the world may take between 12 and 24 months, the sector may not see a recovery this year.

Domestic tourism is not seeing a full reopening either, but Genting Malaysia Bhd’s plan to open its US$800 million (RM3.3 billion) outdoor theme park Genting SkyWorlds in the middle of the year will provide a nice boost for its business.

Amid the challenging business environment, micro enterprises and SMEs have urged Putrajaya to lend a hand. SME Association of Malaysia president Datuk Michael Kang says local SMEs are still facing financial problems because the economy has not fully opened and that they need assistance from the government in the form of wage subsidies, rental subsidies and loan facilities from banks.

“Last year, some SMEs could still sustain because they had cash in hand. But with business volume affected for the whole of 2020, they may not be able to survive. We hope that with the vaccination programme, the economy will slowly recover by 2Q or 3Q2021,” he tells The Edge.

Last week, the so-called “Business Survival Group”, representing 262 business associations, called on the government to set up a special purpose vehicle to disburse funds to financially distressed companies.

The FMM-MIER Business Conditions Survey 2H2020 released early this month shows that manufacturers continue to have a cautious outlook, with 41% not expecting any change in business activities in the coming months.

With reduced business activities, the country’s unemployment rate, which rose to a seven-month high of 4.9% in January from 4.8% in December 2020, may remain high this year as labour-intensive sectors such as manufacturing, food and beverage and services will remain cautious about hiring.

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