KUALA LUMPUR: Kenanga Investment Research expects consumer and retail companies to be relative beneficiaries from the RM250bil stimulus package to offset the impact of the Covid-19 coronavirus.
It said on Monday the measures were laudable as they aim to stabilise a tenuous economy. This additional stimulus package is much needed given the pervasive Covid-19 disruptions turning out to be much worse than expected, it added.
“It is difficult to find beneficiaries when so many are negatively affected, ” it said.
“And, one must be reminded that while to some, the handouts are additional incomes and to the others are relief replacements of incomes lost, in an environment as unsecure as this, receivers may well choose to save what is given but at least with the cash handouts, the consumption of life’s basic needs can continue undisrupted, ” it said.
Kenanga Research believed that several fundamentally sound consumer names have indiscriminately fallen victim in this sharp market sell-off.
For sure, business in this first half will be softer than usual, but these are defensive names dealing in basic essential goods that will likely outperform in an uncertain market.
“This is a rare opportunity to pick up names such as F&N (OP; TP: RM35.20), Padini (OP; RM2.40), Poweroot (OP; RM2.65) and QL Resources (OP; TP: RM8.30), ” it said.
Commenting on the RM250bil package, it said the estimated direct funding of RM25bil will stretch the Federal budget by as much as 1.7% of GDP but it is a necessary expense to avert a deeper crisis.
Kenanga Research said this should then widen the country’s budget deficit from 4.3% previously to an estimated 6% for 2020.
Malaysia experienced a budget deficit of 6.7% during the last recession in 2008.
“Besides turning to the MGS market, other financing options available are asset sale, or seeking higher dividends from Petronas and GLCs which could be challenging given poor oil prices and weak equity markets.
“It is likely then that Petronas’ capex will have to be cut even more aggressively. In any case, we believe the domestic bond market has the capacity to absorb RM25bil of supply on a staggered basis without too much impact on yields, ” it said.
