(Updated)

Rising Covid-19 cases, slow vaccination efforts could lead to pullback in market — CGS-CIMB

(Photo by The Edge)

(Photo by The Edge)

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KUALA LUMPUR (April 19): CGS-CIMB Research said concerns over the rising number of Covid-19 cases, as well as slower vaccination efforts, could lead to a pullback in the market.

In a strategy note today, it said the recent increases in Covid-19 cases and the infectivity rate have raised concerns that movements may be restricted in selected areas, and that the interstate travel ban would be prolonged. This, it said, could impact the pace of economic and corporate earnings recovery.

"Latest statistics revealed that close to 700,000 had received one dose of the Covid-19 vaccines, broadly meeting [the target of] Phase 1 of the vaccination programme. However, the key test is Phase 2, during which the government targets to vaccinate 9.4 million individuals over five months.

"To achieve this, we estimate the government will need to raise the number of shots per day, ensure sufficient vaccine supplies are available, and that more individuals are registered and turn up for the vaccination.

"Any major delay in the execution of the immunisation programme, coupled with the increase in Covid-19 cases, could dampen market sentiment and prompt investors to profit-take on recovery stocks given the potential earnings risk," said its analysts Ivy Ng Lee Fang and Nagulan Ravi.

Based on the latest reported data as at April 18, the United States recorded the highest number of individuals who had had their second dose of the Covid-19 vaccine, with a total of 84.26 million people being fully vaccinated.

After the US was India (16.48 million people), followed by the United Kingdom (9.93 million), Indonesia (5.91 million), Germany (5.43 million), Japan (678,405), Singapore (535,864), Malaysia (443,029), Hong Kong (359,926 ) and South Korea (60,585).

In Malaysia, Selangor registered the highest number for a second dose of Covid-19 injections with 63,166 people, followed by Perak (48,822), Sabah (43,304), Kuala Lumpur (38,642) and Sarawak (34,590), according to data released by the Health Ministry.

Going forward, the CGS-CIMB analysts said the research house is keeping its FBM KLCI target at 1,699 points (forward price-earnings of 15.2 times).

At the closing bell today, the KLCI was down 0.5% or 8.09 points to 1,600.29.

The research house's top three stock picks are Inari Amertron Bhd, Public Bank Bhd and Telekom Malaysia Bhd (TM).

"We like Inari as a proxy for rising demand for radio frequency (RF) chips on the back of 5G mobile network migration and its new system-in-package capacity expansion at P34. We expect its RF division to deliver an 85% y-o-y (year-on-year) sales growth in FY21 (financial year 2021) ending June 30, 2021.

"Public Bank is our top pick among Malaysian banks as we believe it is the most defensive against the credit risk arising from the Covid-19 outbreak. Its credit charge-off rate of 33bps (basis points) in FY20 was among the lowest in the sector," said the analysts.

They said TM is CGS-CIMB's top Malaysian telco pick due to the robust core earnings per share growth expected for its FY21, FY22 and FY23 by 15%/9%/21% y-o-y.

"Its FY21F EV/OpFCF (forecast enterprise value/operating free cash flow) is also at a 21% discount to the Malaysian mobile average," the analysts added.

Inari closed one sen or 0.29% higher at RM3.41 today, valuing the company at RM11.4 billion. Public Bank fell one sen or 0.24% to settle at RM4.19, with a market value of RM81.33 billion. TM, meanwhile, rose six sen or 1.02% to close at RM5.96, giving it a market capitalisation of RM22.49 billion.

It is worth noting that Malaysia’s daily new Covid-19 cases have stayed above the 2,000 mark for five straight days. The country's daily cases crossed the 2,000-mark last Thursday for the first time since March 6. Today, it reported 2,078 new Covid-cases.

Active cases, which carry high transmission risk, surged to 20,522 today from 17,575 last Thursday. The death toll due to coronavirus in Malaysia now stood at 1,386.

Surin Murugiah & Tan Choe Choe