PETALING JAYA: The transitory nature of the coronavirus disease (Covid-19) has resulted in extended post-Chinese New Year closures of factories and other establishments, especially in China which has disrupted the supply chain, but work is returning, albeit gradually.
Kenanga Research said that in the Severe Acute Respiratory Syndrome (SARS) experience in 2003, markets actually rebounded around the time when the number of daily cases peaked.
“With Covid-19, while experts have been hesitant to call a peak, it does appear the daily new cases are trending lower from the current peak of Feb 4, ” it said in a report.
Kenanga said sectors that are directly impacted, such as tourism and retail, are likely to recover as sharply as they have fallen.
Its top picks for the lion-hearted are GENTING BHD (target price RM7), Genting Malaysia Bhd (target price RM3.30) and MALAYSIA AIRPORTS HOLDINGS BHD (target price RM9.90), all of which were rated “outperform.”
It also recommended a “buy” for AIRASIA Group Bhd with a target price of RM1.33.
The research house added that banks were among the most vulnerable to the current weakness.
“Our near-term preliminary target for the FBM KLCI is 1,598 points. We look forward to the end of the 4QCY19 earnings season on Feb 29, after which we are almost certain to trim the CY20E EPS on account of a poor outlook for 1QCY20.
“At the current KLCI level of 1,542 points, the implied earnings per share (EPS) for CY20 is 95.4, which is 7% lower than our current expectation of 102.4. This also suggests zero EPS growth in CY20 over CY19, ” it said.
Kenanga also said that the bugbear to gross domestic product (GDP) is a positive for plantations as the sector’s stock prices are far more correlated to crude palm oil (CPO) prices than they are to output.
The research house said the weakness in the fourth quarter of calender year 2019 (4QCY19) should be seen in the context of very poor performing agriculture and mining sectors.
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