Vaccine rollout creates market winners, losers

Companies need to show real earnings growth to attract investors for the long term with current price rallies


AS THE National Covid-19 Immunisation Programme has sparked investor optimism, analysts believe few sectors stand to benefit from the recovery of the economy.

Malacca Securities Sdn Bhd head of research Loui Low said gaming, aviation, construction, property, consumer and oil and gas sectors will be among the main gainers with money likely flowing out of glovemakers that enjoyed a record rally last year.

“In terms of the share price, the glove sector may lose out, but on a longer-term basis, we expect the prices of glovemakers to recover,” he told The Malaysian Reserve (TMR).

iFAST Capital Sdn Bhd fixed-income analyst Ganageaswaran Arumugam foresees banking stocks could present a tactical catch-up play this year as the sector was among the worst hit in 2020 and has not recovered to pre-pandemic levels.

“We are positive on the banking sector as we expect non-performing loans (NPLs) to improve and loan loss provisions to ease on the back of economic recovery.

“Due to the cyclical nature of banks, we also expect net interest margins to improve as the credit environment improves as banks could start deploying capital into higher-yielding assets,” he told TMR.

AmInvestment Bank Bhd (AmInvest) noted that banking sector’s recovery is gaining traction with industry loan growth picking up pace to 3.8% year-on-year (YoY) in January from 3.4% YoY in December 2020 with stronger non-household loan growth, while household loans remained stable at 4.9% YoY.

While impaired loans as banks remain a risk, the quantum of provisions in January was lower than all the three months in the fourth quarter of 2020.

The investment bank is thus ‘Overweight’ on the sector with top buys on Hong Leong Bank Bhd (fair value [FV] RM20.30/share), RHB Bank Bhd (FV RM6.80/share), Malayan Banking Bhd (Maybank) with FV RM9.80/share and CIMB Group Holdings Bhd (RM5.50/ share).

“We favour the larger systematic banks (Maybank and CIMB) to ride on the economic recovery in 2021 and banks with undemanding valuations trading at attractive price-to-book values (RHB Bank). Also, we like Hong Leong Bank with its strong top-line growth, robust profit contribution from associates and resilient asset quality,” AmInvest noted yesterday.

Maybank added two sen each to RM8.08, while CIMB rose six sen to RM4.28 yesterday.

Ganageaswaran said at present, investors should be looking beyond the next year or two whereby glove demand is going to taper-off on the back of the global vaccination programmes, which would lead to lower Covid-19 cases and also a spike in glove supply due to increased capacity from existing and new glovemakers.

“This would cause glove prices to decline and margins to narrow, and glovemakers are unlikely to see the same super profits again.

“We believe stocks that have previously increased in prices in the past year and are currently trading at hefty valuations face bigger downside risks should valuations return to their FV,” he added.

On companies that jumped into supply of vaccines business recently, he said although it is given for free, the costs are borne by the government which include distribution costs.

“Given that most companies in Malaysia are involved in the distribution part of the value chain, the revenue of these companies is not correlated with the fact that the government is giving out the vaccine for free,” he said.

Low said sentiment-wise, the rally in vaccine-related counters is going to taper off much like what has happened in the glove sector.

He said the companies need to show real earnings growth to attract investors for the long term, with current price rallies, at this juncture, are still a thematic play without earnings to back.

Top Glove Corp Bhd’s share price continued its fall, down 15 sen or 3.06% yesterday to RM4.75, giving the glovemaker a market capitalisation of RM38.96 billion.

With its price at an eight-month low, Top Glove executive chairman Tan Sri Dr Lim Wee Chai (picture) raised his direct shareholding in the group to 26.42% or 2.11 billion shares on March 1.

He acquired 4.04 million shares at RM4.9287 each, according to Top Glove’s filing to Bursa Malaysia.

MIDF Research noted that the correction of the share prices in glove stocks have made them attractive in terms of valuation on top of decent dividend yield at current levels.

“In terms of the direct beneficiary of the vaccine rollout, it will likely be pharmaceutical companies such as Pharmaniaga Bhd.

“On a more general basis, sectors that have been negatively impacted are expected to recover from the vaccine rollout as the vaccine rollout could mean that economic activities will start to resume,” MIDF head of research Imran Yassin Mohd Yusof said.

Pharmaniaga’s share price closed 24 sen or 5.54% lower at RM4.09 yesterday, giving it a market capitalisation of RM1.07 billion.