Auto, banking among top picks for MCO 2.0


THE sectoral impact of the Movement Control Order (MCO) on the country is expected to be less severe compared to the economic challenges faced last year.

MIDF Amanah Investment Bank Bhd in a report recently listed the property and real estate investment trust sector to be the most affected by the MCO, with it being positive on the automotive, banking and construction sectors.

Its top picks in the automotive sector are Bermaz Auto Bhd and MBM Resources Bhd. MIDF gave a ‘Buy’ call on the two companies with a target price (TP) of RM1.70 and RM3.90 respectively.

The MCO 2.0 is expected to have a negative impact on car sales during the period of implementation, but a mild impact for the overall year, assuming the MCO is limited to the two-week period.

“Our broader view is that it is unlikely to be as bad as MCO 1.0 in terms of macro implications, given that a larger group of economic sectors are allowed to operate, and given the visibility of vaccine roll- out this time around.

“For autos, specifically, extension of the sales and service tax holiday until June 2021 could more than offset the impact of MCO 2.0,” it said in a note.

Premised on the outlook coupled with expectation of minimal macro implication, MIDF maintained its financial year 2021 forecast total insurable value at 550,000, an increase of 5% year-on-year (YoY) and a positive call on the sector.

As for the banking sector, the firm maintained its positive stance on the sector and recommended a ‘Buy’ call for RHB Bank Bhd and Hong Leong Bank Bhd at a TP of RM5.90 and RM19.70 respectively.

It stated that the impact of the MCO on the sector will be indirect. The main concern for the sector is on the asset quality of the banks that are involved in sectors that face greater risks such as commercial properties.

“We opine that asset quality of banks is already under pressure since the end of the loan moratorium. However, we believe that banks have built up sufficient loan-loss buffers.

“Based on the reporting of last year’s third-quarter results of banks under our coverage, we noted that accumulated provisions increased by circa 200% for the nine-month period of 2020 due to deterioration in the macroeconomic factors and management overlay, such as additional provisions based on judgement by the management of the banks,” MIDF stated.

It also does not foresee the banks’ gross impaired loan ratio to breach 1.7% level, given the targeted assistance programmes.

The renewed lockdown is expected to have minimal impact on construction firms as they fall under one of five essential economic sectors, alongside manufacturing, service, trade and distribution, and plantations and commodities.

MIDF noted that the average workforce capacity remains in the range between 80% and 90% in line with current Covid-19 standard operating procedures, which could continue to support the earnings recovery momentum.

“Our top picks for the sector are Sunway Construction Group Bhd (‘Buy’, TP: RM2.14), Gamuda Bhd (‘Buy’, TP: RM4.20) and IJM Corp Bhd (‘Buy’, TP: RM1.80) as potential main beneficiaries of the revival of mega infrastructure projects.

They have a relatively strong balance sheet, healthy execution track record and increasing overseas exposure to partially cushion any absence or delay of major domestic awards possibly arising from political uncertainties,” it said.

Meanwhile, RHB Research Institute Sdn Bhd maintained its ‘Buy’ call on Bursa Malaysia with a TP of RM9.70, reflecting an 18% upside.

In a recent note recently, RHB Research expects Bursa’s trading activities to remain vibrant in 2021, driven mainly by sustained retail participation and sector rotation to cyclical sectors.

“Our 2021 forecast securities average daily value (SADV) expectation of RM3.15 billion assumes a 26% YoY normalisation from the extraordinary 2020, but is still meaningfully higher than the pre- Covid-19 trading levels,” it said.

Bursa concluded the first trading week of 2021 with an SADV of RM5.36 billion, with a total trading value of RM26.79 billion.