Coronavirus outbreak: Winners and losers

  • Economy Premium
  • Saturday, 01 Feb 2020

IT was without a doubt tumultuous start to the week for markets across the globe as novel coronavirus (2019-nCoV) fears took over.

As expected, when Bursa Malaysia opened on Tuesday after the long Chinese New Year weekend, share prices dipped across the board, particularly those which had any form of exposure to the tourism, hospitality and retail sectors.

This is especially with the country’s Visit Malaysia Year (VMY) 2020 potentially being hit hard by the fears about the outbreak – as it remains uncertain how long it will take for the authorities to contain the virus – and also due to travel restrictions by China on its citizens.

There were also, of course, the immediate beneficiaries, with glove manufacturers leading the way on the back of an anticipated surge in demand for medical gloves, aside from the manufacturers of face masks and hand sanitisers.

Hospital and healthcare-related players also saw their share prices moving upward during the first few days of the week as the number of coronavirus cases continued to rise.

By mid-week, it appeared as though there was a bit more calm in the market as some of the early gainers saw slight declines – particularly the glovemakers – while some of the initial losers recouped some losses.

Fast forward to the end of the week, a clearer picture has emerged as to who the likely winners and losers are.

One sector that has become among the biggest beneficiaries of the respiratory illness is the glove sector.

The anticipated immediate surge in demand, coupled with news that their Chinese customers had made an “urgent request” for increased supply of medical gloves, sent share prices skyrocketing.

Top Glove executive chairman Tan Sri Dr Lim Wee Chai tells StarBizWeek that the group has seen a spike in orders from China, Hong Kong, Singapore and Taiwan.

“In fact, over the past few days, the total sales orders from China received are equivalent to more than double our usual sales to China,” he says, adding that the company expects more sales orders to come in, depending on the severity of the outbreak and how long it lasts.

The group’s share price gained some 5.5% over the week, before settling at RM5.85.

Among other glovemakers, Hartalega Holdings Bhd hit a high of RM6.25 before closing at RM5.92, while ADVENTA BHD, Kossan Rubber Industries Bhd and COMFORT GLOVES BHD gained some 23%, 3.3%, and 1.1% each.

Companies producing surgical masks and hand sanitisers are surely reaping benefits as well, with these items sold out at most pharmacies and convenience stores.

Bioalpha Holdings Bhd, which runs the Constant Pharmacy outlets nationwide and manufactures health supplements, says it is seeing surgical masks and hand sanitisers flying off the shelves.

Managing director William Hon tells StarBizWeek that the company is also seeing a soar in the sales of health supplement products, particularly those used to improve respiratory health and strengthen the immune system.

“In fact, some of these health supplements as well as the surgical masks and sanitizers are currently out-of-stock but we are restocking now and we expect them to be back on the shelves soon.

“This is also in anticipation of higher demand in the coming days as more people return to Malaysia from holidays,” he says.

Healthcare-related players like Pharmaniaga Bhd rose to hit a high of RM2.22 during the week before slipping to close 3.8% lower by the end of the week.

Hospital operators IHH Healthcare and KPJ Healthcare Bhd also fell after recording gains earlier in the week, although analysts say private hospitals are unlikely to benefit from such contagious outbreaks due to the lack of scale and facilities to isolate infected patients.

On the flip side, the potential losers from the coronavirus scare are those related to the tourism, hospitality, retail and the gaming sectors.

This is due to the fact that the number of tourists coming into the country is likely to decline, affecting not only airports, airlines and hotels but also the larger shopping malls and even casino businesses, among others.

Aside from travellers cancelling plans to visit countries like Malaysia, which have confirmed cases of the coronavirus, there is also the travel restrictions imposed by China on its citizens from travelling out of the affected areas there.

Chinese tourists are today among the most lucrative visitors for many countries.

A report by the Wall Street Journal noted that nearly 168 million residents of China went outside the country in 2018, based on the UN World Tourism Organisation, and spent some US$277bil.

In Malaysia, during the first nine months of 2019, tourists from China made up the third largest number of arrivals and the second largest in terms of tourist expenditure at RM12.8bil after Singapore (RM16.3bil).

Taking a look at specific companies likely to lose out, there is MALAYSIA AIRPORTS HOLDINGS BHD (MAHB) which operates 39 airports across the country.

MAHB’s share price fell last week to a low of RM6.22 from its previous closing price of 6.83 in the previous week, before recovering to end last week at RM6.74.

In terms of airlines, AIRASIA BHD shed some 8.25% over the week, while AIRASIA X also closed about 13% lower.

According to MIDF Research, however, MAHB’s passenger traffic growth in Malaysia fell only 1.5% year-on-year to 33.5 million during the SARS outbreak back in 2003. Meanwhile, the total number of international passengers at the KLIA Main Terminal travelling to and from China had declined by 10.7% during the same period.

“Moreover, we found that during the SARS outbreak between November 2002 and July 2003, passenger traffic took an average of two to three months to normalise,” it said in a recent note.

Given that it has been almost 20 years since the SARS outbreak, the research house adds that it believes technological advancements in the healthcare sector will likely be able to contain the disease better.

In the hotel space, Shangri-La Hotels (M) Bhd sank, which owns and operates the Shangri-La Hotel in Kuala Lumpur, Shangri-La Rasa Ria Resort & Spa and Shangri-La Rasa Sayang Resort & Spa, among others also saw its share price taking a hit last week, sinking about 3.8% to close at RM4.70.

With shopping making up a lucrative portion of the country’s tourism industry, major shopping malls, particularly in the Kuala Lumpur city centre, are expected to lose out, which could be negative to owners and operators.

Malls like Suria KLCC and Pavilion KL are among the most popular among tourists, and are owned by KLCC Stapled Group and Pavilion REIT.

As for the gaming counters, it is worth noting that Genting Malaysia and GENTING BHD had fallen 29% and 23% each during the SARs outbreak.

The current ban by China on outbound group tours is expected to negatively impact the gaming sector – depending on how long the outbreak lasts.

“Recall that during the SARS outbreak in 2003, Malaysia has also temporarily banned visits from China along with a slew of travel from other destinations.

“However, there is no material impact on earnings yet unless the spread of this virus escalates and begins to level the disruption of travelling,” UOB Kay Hian says, adding that casino stocks are now trading in deep value and further dips provide opportunities to collect.

Looking ahead, experts have cautioned that the outbreak of the coronavirus is expected peak in the days ahead before the situation is finally resolved.

Based on the SARs experience, the general perception is that impact of affected sectors should be temporary and not too damaging – depending on how quickly the outbreak can be contained.

While the technological advancement in healthcare over the years offer some reassurance that it will be resolved swiftly, the fact that travelling has become so much easier and affordable makes it more difficult to keep the virus from spreading.

The week ahead will be interesting to watch to see how investors react to the rising number of cases and further news about the outbreak, as well if any new winners or losers emerge.
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novel coronavirus , Wuhan , pneumonia


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