PB Strategy-Market 1H2020 EN 20191216

PUBLIC INVESTMENT BANK
PublicInvest Research Market Strategy Monday, December 16, 2019

KDN PP17686/03/2013(032117)
Malaysia 1H 2020
FBM KLCI CHART Keeping The Optimism
1,750 Global Economy. The world will now be waiting anxiously on what’s next following
the successful negotiation of the US-China “phase one” deal, one which is crucial for
1,700
President Trump’s 2nd term in office and also for China which is feeling the effects of
trade-related slowdowns. Global growth will recover in 2020 as a result, underpinned
by the rebound in trade and investment activities. Sentiment should also improve on
1,650
the back of higher risk appetite towards risky asset. China, in all probability, will push
for structural changes that are longer-term in nature to avoid major disruptions to its
1,600 economy. US, on the other hand, is likely to be contented for now with seeing a more
favorable trade deficit with China and improvement in its intellectual property rights’
1,550 protection.
Malaysian Economy. 2020 will see steadier growth potential for Malaysia, driven by
1,500
Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19
resilient domestic demand on the back of an expected recovery in other engines of
growth namely manufacturing, mining and agriculture. Trade and investment activities
will rebound, albeit gradually, courtesy of the impending breakthrough in US-China
FBM KLCI (current) 1,571.16 trade negotiations. Growth in 2020 will also be aided, among others, by the expected
FBM KLCI (year-end 2020) 1,680.00
Upside/(Downside) 6.9%
rebound in the Ringgit, a lower base effect and readily-available capacity that will push
2020 growth to be slightly higher at 4.8% compared to 4.7% in 2019.
52 Week Range (RM) 1,548.45 - 1,732.37 Market: What continues to ail the Malaysian market? No Asian economy has been
3-Month Average Vol (‘000) 95,783 spared the ill-effects of US-China trade tensions. Vietnam, up till September this year,
YTD returns (%) -7.1%
was the only country to consistently record positive export growth, but has also
succumbed since (October: -0.8%). Yet the FBM KLCI remains the worst-performing
FBM KLCI PERFORMANCE benchmark year-to-date, Asian-wide. Our economic fundamentals may not necessarily
be the best. We can’t say it is the worst either. We suggest various reasons for us to
1M 3M 12M
Absolute Returns -2.4 -0.9 -2.6
keep the optimism (pages 12 to 17).
Malaysia’s investment proposition for 2020 appears to be better than what it is in

2019. We now have clear growth initiatives, as unveiled in the Budget 2020
Sector Call
Airline Neutral announcement with its positive overtones. The government has stepped up (albeit in
Auto Neutral targeted manner), with consumers seemingly lacking confidence to spend and
Banking Neutral businesses appearing reluctant to invest. On the external front, we are now likely to
Construction Neutral
Consumer Neutral
have some semblance of calm following the signing of the phase one deal.
Gaming Neutral
Gloves Neutral Near-term conditions still warrant a trading-oriented stance however. Opportunities
Healthcare Overweight may abound given obvious market weaknesses but we would not suggest going all
Logistics Neutral gung-ho as yet, even as all indications point toward upsides in the market. There are
Manufacturing Overweight
Media Neutral (n) still many moving parts to yet-unresolved external developments which may unsettle
Oil and Gas Overweight nerves very quickly. The US-China ‘phase one’ deal may still unravel, with President
Plantation Overweight Trump being the unpredictable person as he is. There is also the other issue of his tiffs
Property Neutral
Power Neutral
with the other half of the developed world, so to speak.
Telecommunication Neutral
Timber Neutral (p) We still think opportunities are more likely in the larger-capitalized names (for the beta
(p) positive bias (n) negative bias play) despite valuations not being particularly cheap. Selective exposure to the smaller
caps (for the alpha play) remains a must. Our year-end 2020 target for the FBM KLCI
is 1,680 points which corresponds to a ~16.5x multiple 1-year forward earnings.
Research Team
T 603 2268 3000 Our stock preferences are AMMB Holdings, Genting, Hibiscus Petroleum, Johore Tin,
F 603 2268 3014 Magni-Tech Industries, Mega First Corporation, Sarawak Plantation, Serba Dinamik,
E research@publicinvestbank.com.my SKP Resources and Ta Ann Holdings.
1 Important disclaimer is provided at the end of this report.| PUBLIC INVESTMENT BANK Page 1 of 49
PUBLIC INVESTMENT BANK BERHAD
1H 2020 Global Economic Outlook

OVERVIEW: ‘May Surprise On The Upside’
Global growth may surprise on the upside driven by the recovery in trade and
Global growth may surprise on the upside investment activities amid the breakthrough in US-China trade negotiations. This could
stoke higher risk appetites in emerging market economies’ (EMs) asset prices -
leading to systemic recovery not only in capital markets but also in currencies and
Fuel positive outlooks that could lift the
more importantly in commodities. This could fuel positive outlooks that could lift the
EMs out of slower growth cycles
EMs out of slower growth cycles caused by trade uncertainties.
Figure 1 : Global GDP (2011 – 2024F)
World G4
4.5%
4.3%
4.1%
3.9%
3.7%
3.5%
3.3%
3.1%
2.9%
2.7%
2.5%
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Source: International Monetary Fund, PublicInvest Research
Note: G4 = US, China, Euro, Japan
Figure 2a : Advanced Economies’ GDP Figure 2b: Emerging Market Economies’
2018 2019F 2020F 2018 2019F 2020F

3.5% 8.0%
3.0% 7.0%
2.5% 6.0%
5.0%
YoY
2.0%
4.0%
1.5%
3.0%
1.0%
2.0%
0.5%
1.0%
0.0% 0.0%
Japan
Other AEs
US
UK
Eurozone
Brazil
China
India
Mexico
ASEAN-5
The US and China have just sealed their phase-one trade agreement, though one
would readily admit that the road towards this mutual agreement has been paved with
Given the urgency and stakes at hand, a series of breakdowns and protracted negotiations, and this could all unravel again
both parties have inked a deal for the
very quickly. China is keen to see trade turning robust again while President Donald
near term, and likely to boost global
Trump’s main priority is to secure a big Phase-1 trade deal and locking in big-ticket
growth in the process.
Chinese purchases of US agricultural (and other) goods that he will tout as an
important win for his 2nd term, if he succeeds. Given the urgency and stakes at hand,
both parties have inked a deal for the near term, and likely to boost global growth in
the process.
We don’t see the likelihood of a Phase-2 trade deal for now despite President Trump’s
indication that they can immediately start negotiations upon conclusion of the first. Our
baseline forecast only assumes a preliminary breakthrough in US-China negotiation
No likelihood of a Phase-2 trade deal for
(phase one). Global growth will also otherwise be supported by accommodative fiscal
now
and monetary policies, at least until trade recovers. That said, we think monetary
policy will likely remain unchanged for a larger part of 2020, a position made possible
by smaller risks of financial imbalances though we expect central bankers to stand
Expected recovery in China’s growth ready as and when called on. Expected recovery in China’s growth momentum will
momentum will bring spillovers to the bring spillovers to the region amid the likely recovery in exports and investment
region activities.
Table 1 : Global Growth Indicators (2018 – 2020F)
YoY growth (%)

2018 2019E 2020F
World 3.6 3.0 3.4
US 2.9 2.4 2.1
Eurozone 1.9 1.2 1.4
Japan 0.8 0.9 0.4
China 6.6 6.1 5.8
India 6.8 6.1 7.0
Advanced Economies (AE) 2.3 1.7 1.7

Other Advanced Economies 2.6 1.6 2.0
Emerging Market Economies (EME) 4.5 3.9 4.6
ASEAN-5 5.2 4.8 4.9
Middle East Nations (MENA) 1.9 0.9 2.0
World Trade Volume 3.6 1.1 3.2
CPI: AE 2.0 1.5 1.8

CPI: EME 4.8 4.7 4.8
Source: International Monetary Fund, Various, PublicInvest Research
Receding external headwinds bode well for ASEAN’s economy, one that will gain from
Receding external headwinds bode well a set of growth drivers that include the resumption in trade and recovery in key sectors
for ASEAN’s economy with an added push from competitive currencies and accommodative fiscal and
monetary policies. This will be further aided by the easing of financial conditions with a
positive impact on investment activity.
Figure 3a : Global Export Growth Figure 3b : Global Import Growth
AEs EMDE AEs EMDE
4.5% 6.0%
4.0%
5.0%
3.5%
3.0% 4.0%
2.5%
3.0%
2.0%
1.5% 2.0%
1.0%
1.0%
0.5%
0.0% 0.0%
2018 2019F 2020F 2018 2019F 2020F
Note: AE = Advanced Economies, EMDE = Emerging Market and Developing Economies
Cognizant of geopolitical risks We remain cognizant of geopolitical risks however, some of which are like the oil
supply shocks in Saudi Arabia recently, tensions in Hong Kong and the Kashmir (India)
region. Effects of the impending BREXIT are yet unknown, and could hurt sentiment.
ASEAN’s more-evident economic and financial integration with the world today will see
effects rippling through from exogenous shocks and contagions.
The following are major global themes that could influence global growth trajectory in
2020:
Improving Terms of Trade. The trade deficit has long been a drag on the US
economy. Any improvement in the terms of trade may help the US grow amid a
Improvement in the terms of trade may prospective reduction in this deficit. This is also crucial for President Trump as no other
help the US grow US president has been able to strike a trade deal with China. This will also score major
points for his re-election campaign amid slight declines in his popularity recently. The
US Federal Reserve (FED), in the meantime, may continue to keep the policy rate
accommodative at least until investment activity recovers. The FED is also expected to
keep the policy rate low as a measure to ensure consumption and employment
remains buoyant. Subdued inflation and the absence of imbalances in the economy
allows for this.
Figure 4a : US Trade Deficit Figure 4b : US Personal Consumption
-40 2.2
2.1
-45
2.0
1.9
-50
% YoY
USDbn
1.8
-55 1.7
1.6
-60
1.5
-65 1.4
Jul-18
Jul-19
Jul-18
Jul-19
Jan-18
Jan-18
Sep-18
Nov-18
Jan-19
Sep-18
Nov-18
Jan-19
Sep-19
Mar-18
Mar-19
Mar-18
Mar-19
May-18
May-19
May-18
May-19
Source: Bloomberg, PublicInvest Research
The extended period of low policy rates bode for capital migration towards the EMs.
This will be driven by the expected de-escalation in trade tensions, at least until after
Extended period of low policy rates bode
the forthcoming US presidential elections in November 2020. On that note, re-election
for capital migration towards the EMs
of President Trump may put further pressure on global growth given his determination
in pushing for a comprehensive trade deal that could entail a large structural change to
China’s economy. This will be highly disruptive due to China’s entrenched and key
position in the global supply chain. President Trump may also encroach into other
sensitive areas like China’s handling of the Yuan and/or the conduct of its
current/capital account which may push tensions to a whole new level.
China: Rebalancing and Reforming. China, despite facing trade-related headwinds,

remains resolute in rebalancing its economy. This is likely to slow growth, a prospect it
China remains resolute in rebalancing its
has already long guided for. Growth of around 6% is not all doom and gloom given that
economy
it will be more sustainable and conducive in the long-term. Downside risks from the on-
going trade tensions are also temporary. China also has enough firepower to mitigate
the impact of external headwinds given its huge forex reserve position (>USD3trn)
which it can tap on to boost the economy. China also has ample monetary space
should growth slow materially.
Any structural change as a result of the trade deal is expected to be spread over the
longer-term so that growth is sustained at between 5% and 6%. An equally-important
consideration is China’s social cohesion, in which it remains committed to creating
35m new jobs every year, hence the unlikelihood of any abrupt changes to its
economic structure and/or landscape in the near term. Our baseline assumption
suggests upside risks to China’s growth forecast amid a return to normalcy in trade
and investment activities in 2020 (2019E: 6.1%; 2020F: 5.8%).
Figure 5 : China Reserve Requirement Ratio (RRR) and Borrowings Rate YTD 2019
Borrowing Rate (LHS) RRR (RHS)
3.31 18
3.30 17
3.29
16
3.28
3.27 15
%
3.26 14
3.25 13
3.24
12
3.23
3.22 11
3.21 10
Jul-18
Jul-19
Jan-18
Jan-19
Sep-18
Nov-18
Sep-19
Mar-18
Mar-19
May-18
May-19
Recovery in commodities, particularly crude oil. Prices should rebound in 2020,

led by oil. Following recent lethargy as a result of a spike in trade tensions this mid-
Recovery in commodities, particularly
year, commodity prices, especially those produced by EMs (oil, crude palm oil, rubber,
crude oil
copper, gold, crude palm oil), are seen to rebound on the breakthrough in US-China
negotiations and improving sentiment towards the EMs. This will also be pushed by
the recovery in demand and projected weakness in the Dollar. OPEC and non-OPEC
supply cut agreement until March 2020, if not longer, will also be supportive of crude
oil prices. We see Brent sustaining within a range of USD70-USD75/barrel in 2020
(YTD 2019: USD64/barrel; 2018: USD71.40/barrel).
Figure 6 : USD vs Oil Price (Brent) – January 2018 to YTD 2019
Brent (LHS) MYRUSD (RHS)
85 0.265
80 0.26
75 0.255
USD per barrel
MYRUSD
70 0.25
65 0.245
60 0.24
55 0.235
50 0.23
Jul-18
Jul-19
Jan-18
Sep-18
Nov-18
Jan-19
Sep-19
Mar-18
Mar-19
May-18
May-19
Recovery in manufacturing to benefit global economy. China’s entrenched

Shipments of manufactured and position in the global supply chain has seen the sector take a hit as a result of the
intermediate goods are expected to trade tensions. Negative spillover effects to regional economies are evident, some
improve with this US-China phase-one being hit harder and earlier (Singapore, Indonesia), milder and later for others
trade deal (Malaysia, Vietnam). Shipments of manufactured and intermediate goods are expected
to improve with this US-China phase-one trade deal, underpinned by readily-available
capacity and competitive currencies.
Figure 7 : Global Manufacturing PMI (Sept 2018 – Sept 2019)
Global US Eurozone China Japan
57
55
53
51
49
47
45
Nov-18
Dec-18
Jan-19
Oct-18
June-19
July-19
Aug-19
Apr-19
Feb-19
Mac-19
May-19
Sept-18
Sept-19
Socio-political tensions could continue to stoke uncertainty however.

Developments in Hong Kong are a concern as it involves a global financial center
(Hong Kong) and the world’s second largest economy (China). Further disruptions to
business could curtail investment appetite indefinitely, somewhat damaging to
Malaysia as Hong Kong is a significant contributor to our foreign direct investments
(FDI). The integrated nature of ASEAN’s financial sector suggests that investors may
shun the region until there is a favorable closure in Hong Kong’s protest.
Protectionist approach could continue to raise risk aversion. President Trump’s

Trump’s 2nd term in power (if re-elected) 2nd term in power (if re-elected) may be negative for the global economy as he is set
may be negative for the global economy to pressure for structural changes in the global economy in a highly disruptive way. He
may not stop at only one trade deal with China in which he is also likely to encroach
into other sensitive areas such as China’s handling of its Yuan and the opening of its
capital account. He may also train his guns on other export heavyweights such as
Germany, Japan, Canada, Singapore and Vietnam, with a single aim of reducing the
US trade deficit. Unless President Trump is keen for a win-win solution to address his
country’s trade imbalances, his re-election may only stoke higher risk aversion -
triggering capital migration towards safe haven assets.
Capital flow volatility may slow, but pivot toward EMs. The breakthrough in US-
China trade negotiations suggest that the drag to global growth will be removed, which
Capital flow volatility may slow, but pivot then lessens reasons for further monetary policy easing. Low rates in the AEs may still
toward EMs be retained however as a measure to bolster domestic demand, at least until trade
recovers more substantively. Improving prospects of EMs coupled with AEs policy
status quo may see capital return to the ASEAN region and EMs which have been
shunned in recent times.
Global prospects. The world will now be waiting anxiously on what’s next following
the successful negotiation of the US-China “phase one” deal, one which is crucial for
Global growth will recover in 2020 as a President Trump’s 2nd term in office and also for China which is feeling the effects of
result, underpinned by the rebound in trade-related slowdowns. Global growth will recover in 2020 as a result, underpinned
trade and investment activities. by the rebound in trade and investment activities. Sentiment should also improve on
the back of higher risk appetite towards risky asset. China, in all probability, will push
Sentiment should also improve on the for structural changes that are longer-term in nature to avoid major disruptions to its
back of higher risk appetite towards risky economy. US, on the other hand, is likely to be contented for now with seeing a more
asset favorable trade deficit with China and improvement in its intellectual property rights’
protection.
1H 2020 Malaysian Economic Outlook

OVERVIEW: ‘Steadier Growth Prospects’
2020 marks the halfway mark of the current government’s 5-year term and the final
year of the 11th Malaysia Plan (2016-2020). Onus is on the government to accelerate
The government is likely to hasten the efforts to support growth and sharpen fundamentals. On this score, the government is
pace of reforms in areas like institutional likely to hasten the pace of reforms in areas like institutional quality, fiscal delivery
quality, fiscal delivery system and fiscal system and fiscal expenditure that could entail making some unpopular moves. Some
expenditure reforms may be challenging but imperative given its burden on the government’s
coffers, and a drag on efficiency. The government will also need to address some
issues that have been hampering foreign investors’ return in a bigger way, reforms in
institutional quality being one of them while efforts to defuse political-related
uncertainties could be another.
Table 2 : Malaysia Economic Indicators (2018 – 2020F)
2018A 2019E 2020F
GDP (%) 4.7 4.7 4.8
IPI (%) 3.1 2.6 3.2
Inflation 1.0 0.8 2.7
USD/MYR 4.03 4.10 4.00-4.05
OPR (%) 3.25 3.00 3.00
Brent (USD per barrel) 54 64 70-75
CPO (RM per tonne) 2,200 2,200 2,600
Source: Department of Statistics Malaysia (DOS), PublicInvest Research
2020 will see steadier growth potential for 2020 will see steadier growth potential for Malaysia, driven by resilient domestic
Malaysia, driven by resilient domestic demand on the back of an expected recovery in other engines of growth namely
demand on the back of an expected manufacturing, mining and agriculture. Trade and investment activities will rebound,
recovery in other engines of growth albeit gradually, courtesy of the impending breakthrough in US-China trade
negotiations. Growth in 2020 will also be aided, among others, by the expected
rebound in the Ringgit, a lower base effect and readily-available capacity that will push
2020 growth to be slightly higher at 4.8% compared to 4.7% in 2019.
Our take on the country’s main economic indicators:
Growth Prospects. Malaysia’s growth momentum was favorable in 2019 considering

headwinds like US-China trade tensions and a pullback in domestic investment activity
which weighed. In fact, the hit to Malaysia by the trade tensions was relatively milder
and took place much later compared to Singapore and Indonesia which have been hit
harder and much earlier. This can be credited to Malaysia’s broad-based export
products and destinations which cushioned the impact of a moderation in
manufacturing activity. The revival in natural gas export also came in time to offset the
slowdown in crude petroleum.
Figure 8a : Malaysia Annual GDP Figure 8b: Malaysia Quarterly GDP
8.0% 7.4% 7.0%

6.2%
7.0% 5.8% 5.9%
6.0% 5.6%
5.4%
6.0% 5.9%
6.0% 5.5% 4.9%
5.3% 4.8% 4.5% 4.7%
5.0% 5.0% 4.4% 4.5% 4.4%
4.7% 4.7% 4.7%
5.0%
4.2%
4.0%
Y-o-Y
Y-o-Y
4.0%
3.0%
3.0%
2.0% 2.0%
1.0% 1.0%
0.0% 0.0%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019F
2020F
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
Source: Department of Statistics Malaysia, PublicInvest Research
All this is set to improve in 2020 amid a projected recovery in mining, agriculture and
Projected recovery in mining, agriculture manufacturing with the former set to rebound from a low base consistent with the
and manufacturing ending of OPEC and its allies’ supply cut agreement in March 2020. The services
sector is also set to get a boost from Visit Malaysia Year 2020 that is expected to user
in an additional 15% international tourists (+4m to 30m; 2018E: 26m).
Table 3 : Malaysia GDP Growth Numbers (Demand and Supply Side)
2018 2019e 2020f

Aggregate Demand 5.5 2.6 4.2
Private Consumption 8.0 7.0 7.3
Public Consumption 3.3 -0.6 1.7
Gross Fixed Capital Formation 1.4 -1.9 3.5
Services 6.8 6.2 6.4

Manufacturing 5.0 4.3 5.1
Mining -2.6 -0.6 -0.9
Agriculture -2.1 4.0 3.3
Construction 4.2 0.9 4.0.
Real GDP 4.7 4.7 4.8
Source: PublicInvest Research
Steadier industrial production. The Industrial Production Index (IPI) could rebound
in 2020, driven by recoveries in the mining and manufacturing sectors on the back of a
Manufacturing-based recovery will be breakthrough in US and China trade negotiations. Manufacturing-based recovery will
further pushed by the competitive Ringgit be further pushed by the competitive Ringgit and readily-available capacity. Mining, on
and readily-available capacity the other hand, may get an added boost from the ending of OPEC and non-OPEC
producers’ supply cut agreement in March 2020. The mining sector will also gain from
steadier natural gas output that is still recovering from supply outage in 2018. We see
IPI growth accelerating to 3.6% YoY in 2020 from 2.3% in 2019.
Figure 9 : Malaysia Industrial Production Index trend (2011 – 2020F)
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
2011
2012
2013
2014
2015
2016
2017
2018
2019F
2020F
Steady net trade and steady current account surplus in 2020. Trade will be
boosted by the sealing of US and China’s phase-one deal, driving recoveries in
manufacturing and agriculture, two of the country’s key export products. The latter has
seen some negative spillover effects amid sentiment turning fragile as trade tensions
Trade surplus likely to inch higher, albeit impacted China’s economy.
moderately, given the expected rise in
investment activity Trade surplus is likely to inch higher, albeit moderately, given the expected rise in
investment activity which has been hit by delayed decisions amid trade uncertainties.
This will bode well for current account surplus which we project to remain resilient in
2020 amid momentum that will also be pushed also by the easing in financial
conditions and the consequent rise in asset prices. Attractive corporate valuations and
competitive Ringgit will add more fuel to the return of foreign investors into capital
markets.
Monetary policy to remain steady in 1H20. Interventions in the Overnight Policy

Further monetary policy moves appear to Rate (OPR) and Statutory Reserve Requirement (SRR) are only likely to produce
be unnecessary for now, with global significantly tangible results in 2020 due to lag effects. Further moves appear to be
economic conditions looking decidedly unnecessary for now, with global economic conditions looking decidedly better with the
better with the current US-China current US-China resolution. Domestic private consumption, our main engine of
resolution. growth, has been encouraging in 2019 with no signs of material moderation. Growth
has only reverted back to mean due to a high base effect.
Figure 10 : Policy Rate Decisions – Malaysia
40 30
25 25 25 25 25 25 25 25
20
Basis Points
-20
-25 -25 -25
-40
-60 -50
-80
-75
-100
Jul-10
Jul-14
Jul-16
Nov-05
Nov-08
Jan-09
Jan-18
Apr-06
Feb-06
Feb-09
Mac-10
May-10
May-11
May-19
Source: Bank Negara Malaysia, PublicInvest Research
Our baseline assumption of a breakthrough in US-China trade negotiations suggests

Status quo in monetary policy, for 1H20 an imminent recovery in the manufacturing, mining and agriculture sectors with
at least, backed by resilient growth services sector, our largest component on the supply side, expected to perform fairly
projection well, supported in part by Visit Malaysia Year 2020. We project status quo in monetary
policy, for 1H20 at least, backed by resilient growth projection.
Rebound in Inflation. Rationalization in petrol, water and medical costs will be the
main drivers of a sharp rebound in inflation in 2020 (2.7%; 2019E: 0.8%). This will be
further pushed by the introduction of a digital tax on the 1st of January.
Sharp rebound in inflation in 2020
Notwithstanding this, the sharp YoY rise should not be a concern given that it is driven
by cost-push factors, with prices likely to eventually ease in line with expected
pullbacks in demand. A rise in inflation is positive for the economy, boosting capital
investment, pushing real interest rates lower and encouraging credit expansion, while
also triggering greater interest in risky assets (ie. equities).
Figure 11 : Malaysia Inflation Trend (2008 – 2020F)
CPI (LHS) Core CPI (RHS)
6.0% 4.5%
4.0%
5.0%
3.5%
4.0% 3.0%
2.5%
3.0%
2.0%
2.0% 1.5%
1.0%
1.0%
0.5%
0.0% 0.0%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019F
2020F
Ringgit volatility to subside. Movement will continue to be influenced by external

developments. The drivers may come from the breakthrough in US-China negotiations,
Ringgit volatility to subside the turnaround in oil prices and policy status quos in advanced economies. Investors’
higher risk tolerance may also be pushed by a recovery in demand for Emerging
Market exports, notably in commodities like oil. The Ringgit could recover to between
RM4.00 and RM4.05 per Dollar in 2020 (YTD 2019: RM4.14 per Dollar).
Figure 12 : Malaysian Ringgit (MYR) vs Exports (YTD 2019)
Export Growth (LHS) RM per USD (RHS)
20% 4.50
15% 4.00
RM per USD
YoY Growth
10% 3.50
5% 3.00
0% 2.50
-5% 2.00
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019F
2020F
1H 2020 Malaysian Market Outlook
KEEPING THE OPTIMISM
What continues to ail the Malaysian market? No Asian economy has been spared the
What continues to ail the Malaysian ill-effects of US-China trade tensions. Vietnam, up till September this year, was the
market? only country to consistently record positive export growth, but has also succumbed
since (October: -0.8%). Yet the FBM KLCI remains the worst-performing benchmark
year-to-date, Asian-wide (Figure 13). Our economic fundamentals may not necessarily
be the best. We can’t say it is the worst either. But amongst our Emerging Market
Local bourse has seen the most regional peers, the local bourse has seen the most pronounced sell-down by foreign
pronounced sell-down by foreign investors this year. Indonesia has seen net inflows while Philippines and Thailand has
investors this year seen significantly lesser outflows (Table 4).
Figure 13 : Regional Market Performance (YTD 2019)
as at 5 Dec as at 30 Jun
Taiwan 19.2%
10.3%
Australia 18.4%
17.2%
China 15.9%
19.4%
India 12.9%
9.2%
Vietnam 7.9%
6.4%
Philippines 4.4%
7.1%
Singapore 3.5%
8.2%
1.4%
Only Vietnam, India,
Hong Kong 10.4% Australia and Taiwan
1.0% building on
Korea 4.4% momentum
Thailand 0.1%
10.6% Malaysia and
Indonesia -0.7% Indonesia in the red,
2.6%
YTD
Malaysia -7.5% -1.1%
-10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Table 4 : Foreign Investor Net Flows

Malaysia Indonesia Thailand Philippines
(RMmn) (IDR bn) (THBbn) (PHPmn)
2016 -3,162.7 +16,169.5 +77.9 +2,802.6
2017 +10,763.9 -39,869.2 -25.8 +56,199.7
2018 -11,698.8 -50,745.8 -287.5 -61,009.9
YTD 2019 (Nov) -9,927.3 +48,746.5 -20.8 -4,952.5
Source: CEIC, PublicInvest Research
Economic growth initiatives and/or impetus, or lack thereof, are always mirrored in
markets, the most reflective scorecard. Admittedly, Malaysia has not exactly been a
Malaysian market is an obvious laggard, leading light until recently. The Malaysian market is an obvious laggard, with significant
with significant momentum lost in recent momentum lost in recent months. On account of steadier economic numbers (pages 7
months to 10) expected in the coming year however, we should see the local bourse
performing commensurately. But will it?
While there is great urgency to overcome current self-inflicted “distractions”

convincingly lest the market remain in a rut for a while, the Malaysian economy (and
market) is one with significant latent potential. We suggest various reasons for us to
keep the optimism.
Inefficient, yet effective. Over the last few years, it can be said that Malaysia has not
grown to its full potential. We make this assertion on the basis of budget expenditures
Malaysia has not grown to its full not fulfilling its intended purposes, particularly development-related spending which
potential would have had (negative) knock-on effects on growth. Incidentally, GDP growth has
been sub-5% in 5 of the last 8 years, this year and next included. We have seen some
consistent “over-spending” on emoluments, pensions and gratuities, an area which we
are already tops amongst our ASEAN peers. Malaysia spends ~36% of its annual
expenditure budget on this, Philippines a close second at ~31%, followed by Indonesia
(~26%), Thailand (~16%) and Singapore (~4%). And as mentioned earlier, there has
been constant “under-spending” on economic and social development.
Table 5 : Malaysian Budget Discipline (What Is Spent vs What Is Asked For)
BUDGETED EXPENDITURE vs ACTUAL EXPENDITURE
2013 2014 2015 2016 2017 2018
RMmn RMmn RMmn RMmn RMmn RMmn
Emoluments 2,402 3,347 4,350 2,608 -364 840
Pension/Gratuities 1,242 2,518 2,572 1,529 1,000 627
Debt Service -1,424 -612 -117 -120 -1,037 -335
Supplies/Services 160 -2,341 -1,727 -6,230 2,738 1,662
Subsidies/Social Assistance 5,749 303 -10,341 -1,410 -46 972
Asset acquisition 315 402 23 -32 -484 -130
Grants and transfers -1,405 -1,712 -2,781 -991 1,048 -6,922
Others 32 -16 8 -87 40 -3
Operating Expenditure 7,070 1,889 -8,102 -5,027 2,895 -3,290
BUDGETED EXPENDITURE vs ACTUAL EXPENDITURE

2013 2014 2015 2016 2017 2018
RMmn RMmn RMmn RMmn RMmn RMmn
Economic -7,354 -7,462 -6,014 -5,187 -1,714 9,761
Social -216 -110 -1,439 -2,671 225 1,153
Security 49 332 -146 -168 34 -285
General Administration 32 344 -133 21 340 -533
Development Expenditure -7,490 -6,897 -7,732 -8,005 -1,116 10,095
Note: + = over-spending, - = under-spending
Malaysia has continued to retain the faith of foreign businesses in spite of the apparent
Has continued to retain the faith of profligacies and likely opportunity losses in growth and/or returns, with unabated
foreign businesses in spite of the investment inflows, albeit at varying degrees. Malaysia still trumps her Emerging
apparent profligacies and likely Market (Indonesia, Vietnam, Thailand) neighbors in terms of well-developed
opportunity losses in growth and/or infrastructure, educated workforce, technological advancements and a myriad of
returns incentives. Approved manufacturing investment is up +74.2% YoY to RM33.1bn as at
1H2019 while approved FDI across all sectors is up +94.2% YoY to RM49.5bn as at
1H2019.
Figure 14 : Foreign Direct Investments (2010 - 1H2019)
RMbn FDI position (lhs) Net FDI (rhs) RMbn
800.0 47.0 50.0
700.0 39.4 40.4 45.0

37.3 38.2
35.5 36.3 40.0
600.0 32.6
35.0
29.2 28.5
500.0 30.0
400.0 25.0
300.0 20.0
15.0
200.0
10.0
100.0 5.0
335.0 372.3 400.8 439.0 474.6 501.1 547.4 595.5 631.2 667.5
- -
1H 2019
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source Malaysian Investment Development Authority (MIDA), PublicInvest Research
What are multipliers to growth when efficiencies are addressed, delivery system
The intent is there. The promise is improved, and structural reforms instituted? With greater bang for our buck budget-
exciting. But will time permit? wise, we hazard to believe economic growth will be >5% on average, with capital
markets strengthening accordingly. The intent is there. The promise is exciting. But will
time permit?
Shared Prosperity Vision 2030 (SPV 2030). We laud the government’s effort in
Effective institutional delivery and fiscal committing to making Malaysia a nation that achieves sustainable growth along with
sustainability fair and equitable distribution across income groups, ethnicities, regions and supply
chains. While SPV 2030 does have its objectives and measureable key indicators to
attain by 2030 (ie. nominal GDP to hit RM3.4tln, SME and micro businesses to
contribute 50% to GDP, GINI coefficient at 0.34, amongst others), we take keen
interest in 2 of the 8 vision enablers, effective institutional delivery and fiscal
sustainability. These will, when done right, go some way in helping Malaysia grow at
its true (and full) potential. Again, the intent is there. But will time permit?
Figure 15 : Shared Prosperity Vision 2030
Source: Ministry of Economic Affairs Malaysia, PublicInvest Research
Clearly defined growth areas are a boon We also take special note of the government’s planned distribution of economic
regions and key economic growth activities (KEGA), which will enable it to allocate
resources more effectively. It will also allow for streamlined foreign direct investments,
with businesses now able to target specific zones. Such clearly defined growth areas
are a boon, particularly for property-related investments.
Table 6 : Proposed Distribution of Economic Regions
Economic Region Key Economic Growth Activity (KEGA)

Perlis • Border and logistics economy
• Eco-tourism
• High-valued agriculture
• Renewable energy
Kedah • Border and logistics economy
• Eco-tourism and heritage tourism
• Modern agriculture and livestock
• Aerospace industry
Pulau Pinang • Logistics hub
• High technology industry
• Health tourism
• Heritage and Tourism
• Technology centers of excellence
Perak • Eco-tourism and heritage tourism
• High technology fisheries and livestock
• Rural industries
• Creative industry economic hub
Selangor • Manufacturing, automotive and MRO
• Industry 4.0 hub and hi-tech parks
• Ports and logistics
• Digital economy and disruptive technology
• Smart agriculture
W.P. Kuala Lumpur • ASIA Tourism (ASIA Gateway)
• Regional financial hub
• Islamic Fintech 2.0 hub
W.P. Putrajaya • Federal Government Administrative Center
• Diplomatic hub
Negeri Sembilan • Eco-tourism and heritage tourism
• Malaysia Vision Valley
• Smart and high-valued agriculture
Melaka • Tourism and heritage tourism
• Halal hub
• Smart city
Pahang • Eco-tourism
• Commodity economy and downstream products
• Modern mining
• Transportation and logistics hub
• High technology agriculture
Terengganu • Commodity economy and downstream products
• Island and costal tourism
• Coastal economy and fisheries
• Secondary educational hub
• Downstream petroleum processing
Kelantan • Border and logistics economy
• Cultural and rural economy
• Heritage tourism
• Rural manufacturing industries
• Agro-tourism and eco-tourism
Sabah • Island tourism
• Borders economy
• Downstream petroleum processing
• Commodity economy and downstream products
• Commodity economy and aquaculture
• Fisheries and aquaculture
Sarawak • Commodity economy and downstream products
• Petroleum and LNG
• Eco-tourism
• High technology agriculture and livestock
• Renewable energy
Source: Ministry of Economic Affairs Malaysia, PublicInvest Research
Growth For The Here and Now. While effects of the above will likely only be felt over
the medium to longer term, if successfully executed, the government has also unveiled
Government has also unveiled initiatives initiatives for the here and now, none more evident than in the recent unveiling of
for the here and now Budget 2020 which is expansionary in nature. It is growth-centric, with sufficient
measures to impact the economy positively, and more importantly, immediately. It is
also designed to enhance job creation and structural reform, paying some attention to
driving the country’s growth in the new economy and digital era, with foremost strategy
of making Malaysia the preferred destination for higher value-added investments a
truly laudable one. The country has remained trapped as a middle-income nation with
its current labor-intensive, low-skilled and low-cost industry-centricity. In short, it is an
appropriately expansionary budget for current conditions.
We acknowledge that not all issues may have been addressed comprehensively
(measures to enhance the country’s competitiveness and improve productivity,
amongst others), we don’t think everything can and will be resolved in one fell swoop
either, bearing in mind the government’s commitment to restoring fiscal health in the
medium term.
Table 7 : Quick Wins To Support Growth
Sector Measures Impact

Technology • Special tax allowances to encourage • Business growth, higher
electronics and electrical (E+E) sector employment, improved
consumption spending
Property • Lower minimum threshold for foreign • Overhang cleared, cash flow
purchasers (addresses overhang) constraints addressed
• Government-banks’ collaboration for • Addressing affordability issues
Rent-To-Own scheme
Auto • Targeted fuel subsidy, toll rate • Improved consumption
reductions spending
Consumer • Malaysian@Work initiative to create • Better income prospects,
better employment opportunities improved consumption
spending
Healthcare • Higher allocation (+6.6% to RM30.6bn) • Improved social assistance,
from Development Expenditure better consumer sentiment,
higher consumption spending
Source: Economic Report 2019/2020, PublicInvest Research
Measures are also being put in place for the medium to longer term to effect structural
reform, one which will re-industrialize Malaysia’s economy through digitalization, better
integration with the global supply chain, and one that incentivizes work.
Table 8 :Longer-Term Measures To Effect Structural Reform
Thrust Measures Beneficiaries / Benefits
Higher value-added • Special incentive packages to • Construction
and productive attract Fortune 500 companies • Transportation
economy • Extended tax exemptions • Value-added manufacturing
• Automation grants • Tourism
• Augmented financing (for SMEs)
Sustainability and • Malaysians@Work (hiring • Income enhancement
inclusivity unemployed graduates, women) • Deepening of human capital
• Greater utilization of locals,
lowering foreign exchange
outflows
• Transition from low-cost labor
Source: Economic Report 2019/2020, PublicInvest Research
PRICING THE OPTIMISM
Earnings cycle improving short-term. The recent 3QCY19 reporting cycle showed
some marked improvements versus the immediate preceding quarter, even as external
Earnings cycle improving short-term conditions remained uncertain and domestic 3Q GDP growth slipped to 4.4% from
4.9% in 2Q. The oil and gas and manufacturing sectors provided the bulk of surprises,
indicative of business activities finally stabilizing. The turnaround in plantations is a
welcome sight as companies have not captured and/or benefited from the current CPO
price up-cycle, and may be the surprise package in the upcoming reporting period.
Table 9 : Earnings Trends (2Q CY15 to 3Q CY19)
Above In-Line Below Total Trend

2Q CY15 12.5% (7) 42.9% (24) 44.6% (25) 100.0% (56) -
3Q CY15 14.5% (9) 43.6% (27) 41.9% (26) 100.0% (62) Improving
4Q CY15 19.1% (12) 44.1% (28) 36.5% (23) 100.0% (63) Improving
1Q CY16 12.3% (8) 49.2% (32) 38.5% (25) 100.0% (65) Worsening
2Q CY16 6.4% (4) 47.4% (31) 46.2% (30) 100.0% (65) Worsening
3Q CY16 7.7% (5) 44.6% (29) 47.7% (31) 100.0% (65) Stable
4Q CY16 17.9% (12) 41.8% (28) 40.3% (27) 100.0% (67) Improving
1Q CY17 8.8% (6) 61.8% (42) 29.4% (20) 100.0% (68) Stable
2Q CY17 10.9% (8) 50.7% (27) 38.4% (28) 100.0% (73) Worsening
3Q CY17 13.0% (10) 55.8% (43) 31.2% (24) 100.0% (77) Stable
4Q CY17 26.6% (21) 32.9% (26) 40.5% (32) 100.0% (79) Improving
1Q CY18 6.3% (5) 53.2% (42) 40.5% (32) 100.0% (79) Worsening
2Q CY18 12.7% (10) 55.7% (44) 31.6% (25) 100.0% (79) Improving
3Q CY18 15.2% (12) 50.6% (40) 34.2% (27) 100.0% (79) Stable
4Q CY18 26.9% (21) 42.3% (33) 30.8% (24) 100.0% (78) Improving
1Q CY19 12.7% (10) 57.0% (45) 30.4% (24) 100.0% (79) Stable
2Q CY19 11.4% (9) 45.6% (36) 43.0% (34) 100.0% (79) Worsening
3Q CY19 13.4% (11) 56.1% (46) 0 (25)
30.5% 100.0% (82) Improving
The above is somewhat reflected in corresponding market movements, as the

following chart would suggest.
Figure 16 : Revision Ratio and Effects on the FBM KLCI
Revision Ratio KLCI (Month+1)
1900 0.90
1850 0.80
1800 0.70
1750
0.60
1700
0.50
1650
0.40
1600
0.30
1550
1500 0.20
1450 0.10
1400 -
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
CY15 CY15 CY15 CY15 CY16 CY16 CY16 CY16 CY17 CY17 CY17 CY17 CY18 CY18 CY18 CY18 CY19 CY19 CY19
(May) (Aug) (Nov) (Feb) (May) (Aug) (Nov) (Feb) (May) (Aug) (Nov) (Feb) (May) (Aug) (Nov) (Feb) (May) (Aug) (Nov)
Source: Bloomberg, Companies, PublicInvest Research

Note: A larger number (higher bar) signifies more upgrades, hence the market supposedly reacting to
improvements in the earnings cycle, and vice versa. FBM KLCI reading is the calendar quarter-end close
The main observation to note above is not the number (ratio) per se, but more the
trend it represents. Most noticeably (though there are various other instances),
• 1Q CY16 to 3Q CY16 saw fairly benign momentum which corresponded with

lackluster market movements during the period
• 2Q CY17 to 4Q CY17 saw upticks meanwhile, which also corresponded to

positive trends in the market.
• 2Q CY18 to 4Q CY18 (calendar period: September 2018 to March 2019)

hasn’t quite followed the ‘script’, a result of external considerations (US-
China trade tiff, Brexit debacle, global recession fears, etc)
• 1Q CY19 and 2Q CY19 a normalized picture, with dust having settled.
Recent earnings cuts were more or less in line with the number of disappointments,
most of which were for cost-related issues, providing some comfort that longer-term
Potential uplift to forward earnings business trends remain relatively sanguine. Most cuts are also occurring this calendar
expectations year, which provides comfort. The recent Budget 2020 announcement is expansionary,
providing some potential uplift to forward earnings expectations.
Will this then underpin the markets move higher over the shorter term, as has been the
case historically?
Earnings Momentum Positive Longer-Term. Prospects are also underpinned by

Earnings Momentum Positive Longer- markets (the FBM KLCI) having moved in tandem with the earnings picture, 2016
Term aside. Though not with particular precision, movements have more or less mirrored
expectations and are sufficient to indicate direction.
Table 10 : FBM KLCI – Earnings Growth and Market Direction
2014 2015 2016 2017 2018 2019e 2020f

(RM’m) (RM’m) (RM’m) (RM’m) (RM’m) (RM’m) (RM’m)
FBM KLCI 55,479 53,648 57,009 60,352 57,288 55,608 59,248
Earnings growth - -3.3% +6.3% +5.9% -5.1% -2.9% +6.5%
KLCI year-end 1,761.3 1,692.5 1,641.7 1,796.8 1,690.6 1,620? 1,680?

YoY chg, % - -3.9% -3.0% +9.4% -5.9% ↓ ↑
Note: 1) Estimates are consensus forecast. 2) Basket based on current components, changes not material
Based on historical incidences, the FBM KLCI could close anywhere between 1,600
and 1,640 points for 2019 based on a 2.9% earnings contraction (our earlier
expectation was 1,690 points based on a 1.1% growth). By the same measure, the
FBM KLCI can be anticipated to trend higher and close between 1,680 and 1,700
points in 2020, based on a 6.5% earnings growth expectation at this juncture.
Barring any significant economic downturns which could hurt earnings, the market is
Market is poised to trend higher going poised to trend higher going into 2020, as investors buy into the improving investment
into 2020 merits (and earnings) of corporate Malaysia.
Economic picture – an accurate predictor of market direction? Observations since

2010 do suggest some correlation between market pricing and economic growth
direction. This would make sense as economic slowdowns will precede earnings
degradations or in some instances, contractions, which would then lead to markets
weakening accordingly.
Table 11 : GDP Growth and FBM KLCI Movements
GDP growth FBM KLCI Corresponding?

(%) (YoY)
2010 7.4% +19.3% Y
2011 5.3% +0.8% Y
2012 5.5% +10.3% Y
2013 4.7% +10.5%
2014 6.0% -5.7%
2015 5.0% -3.9% Y
2016 4.2% -3.0% Y
2017 5.9% +9.4% Y
2018 4.7% -5.9% Y
2019 4.7% (PIVB) -7.5% Y
2020 4.8% (PIVB) ??
Source: Various, PublicInvest Research
By that same measure, the market should trend higher in 2020 based on our (and the
Ministry of Finance’s, incidentally) GDP growth expectation of 4.8%?
Or perhaps not, as consensus has more bearish views? Consensus expectations of a

lower 4.5% to 4.6% GDP growth (vs 4.7% for 2018) has already been proven
somewhat “right” for 2019, with markets weakening correspondingly. With even
murkier outlooks for 2020, are we in for another lackluster year for the markets?
Table 12 : GDP Growth (Consensus Expectations)

GDP Growth, % 2019 2020
Bank Negara Malaysia 4.3% - 4.7% -
Consensus (Investment Banks/Stock Brokers) 4.5% 4.3%
International Monetary Fund (IMF) 4.5% 4.4%
Malaysian Institute of Economic Research (MIER) 4.6% -
Ministry of Finance 4.7% 4.8%
World Bank 4.7% 4.5%
Source: Various, PublicInvest Research
POSITIONING FOR THE OPTIMISM
Malaysia’s investment proposition for 2020 appears to be better than what it is in 2019.
Investment proposition for 2020 appears We now have clear growth initiatives, as unveiled in Budget 2020 with its positive
to be better than what it is in 2019 overtones. The government has stepped up (albeit in targeted manner), with
consumers seemingly lacking confidence to spend and businesses appearing reluctant
to invest.
On the external front, we are now likely to have some semblance of calm following the
Some semblance of calm on external signing of the phase one deal, which we had never been in any doubt since this mid-
front year, despite the posturing by both parties. Economic considerations were always
going to take precedence. International Monetary Fund (IMF) studies showed a 0.66%
negative impact to the US economy and -0.93% impact to the Chinese economy from
prolonged trade battles, ~25% and ~15% hits to respective growths.
Near-term conditions still warrant a That said, near-term conditions still warrant a trading-oriented stance. Opportunities
trading-oriented stance however may abound given obvious market weaknesses. We would not suggest going all gung-
ho as yet however, even as all indications point toward upsides in the market. There
are still many moving parts to yet-unresolved external developments which may
unsettle nerves very quickly. The US-China ‘phase one’ deal may still unravel, with
President Trump being the unpredictable person as he is. There is also the other issue
of his tiffs with the other half of the developed world, so to speak (ie. specific tariffs
against France, threats of tariffs against the European Union, etc). Add to that the
distractions from our domestic political-related developments, market conditions may
continue to be volatile.
Should there be pronounced market Should there be pronounced market weakness however, we advocate accumulation as
weakness however, we advocate we remain longer-term positive on the market. Historically priced at 16.4x average
accumulation (over the last 10 years) despite the Malaysian economy not growing at full potential,
markets should ultimately be re-rated higher when efficiencies are addressed, delivery
systems improved, and structural reforms instituted.
Figure 17 : FBM KLCI 1-yr forward PE
1-year Forward PER Average (16.4x)

21
+1 STD (18.1x) -1 STD (14.8x)
20
19
18
Historically priced at 16.4x average (over
the last 10 years) despite the Malaysian 17
economy not growing at full potential 16
15
14
13
12
11
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
In the interim, we still think opportunities are more likely in the larger-capitalized names
(for the beta play) despite valuations not being particularly cheap. Selective exposure
to the smaller caps (for the alpha play) remains a must. Our year-end 2020 target for
the FBM KLCI is 1,680 points which corresponds to a ~16.5x multiple 1-year forward
earnings.
On sectors, we continue to like:
We like: oil and gas, plantations, • Oil and gas (OVERWEIGHT): We see stabilization of crude oil prices around
manufacturing, healthcare the USD70/barrel mark encouraging further activity across the value chain.
• Plantations (OVERWEIGHT): We see CPO prices remaining healthy

throughout 1H 2020 as global production growth slows
• Manufacturing (OVERWEIGHT): We see demand growth pick-ups, driven

by recoveries post-resolution of the US-China trade tiff. Forward valuations
are also relatively inexpensive.
• Healthcare (OVERWEIGHT): We see healthy demand growth going forward,

with recent weaknesses in share price opportune for accumulation.
We also suggest selective exposure into:
• Banking (NEUTRAL): Growth prospects relatively secure while valuations

Selective exposure into: banking, continue to lag the broader market. Asset quality concerns, while valid, are
construction, technology largely over-stated.
• Construction (NEUTRAL): Increasingly attractive as the government

stimulates public sector investment in the coming months.
• Technology (UNRATED): Government’s growth thrust augurs well for sector
Full commentaries are in pages 23 onwards.

Table 13 : PIVB Sector Summary
Earnings
PE(x) Growth #
2019 2020 (%) Note
OVERWEIGHT
Oil and Gas * 25.6 22.4 12.1% Sentiment recovery, positive catalysts
Plantations 50.3 34.1 39.9% Stronger CPO price outlook
Manufacturing 17.4 15.9 13.2% Segment-specific growth
Healthcare 49.1 43.1 13.8% Steady demand growth
NEUTRAL
Banking 11.1 10.3 7.5% Valuations appealing
Consumer ~ 52.0 45.2 15.9% Driver of economic growth
Construction 14.5 16.7 -15.0% Potential re-rating?
IT/Services 12.0 10.9 10.6% Segment-specific growth
Logistics 7.8 6.5 21.3% Earnings growth from low base
Power 14.0 13.6 1.5% Stable, but lacking catalysts
Bldg Materials 14.1 10.5 34.6% Attractive valuations, potential re-rating?
Property 12.9 16.5 -5.5% Negative headwinds
Timber 24.1 9.7 148.5% Attractive valuation, growth fr. low base
Gaming 12.7 12.1 4.8% No re-rating catalysts
Media ^ 16.3 12.1 43.6% No catalysts, earnings growth low base
Auto 19.8 17.0 2.7% Beneficiary of strengthening MYR
Airlines - 28.6 - Earnings volatile, growth from low base
Telecomm. 27.9 27.5 0.3% No re-rating catalysts
Gloves 33.6 31.5 10.7% Growth priced-in, cost pressures
REITs 20.3 19.6 4.1% To benefit from OPR cut
Note: * excludes Sapura Energy (loss-making), ^ excludes Media Prima (loss-making) ~skewed by QL
Resources # market cap.-weighted growth
Before we introduce our suggested picks for 2020, we review performances of our
suggested picks for 2019.
Table 14 : 2019 Suggested Picks (Performance YTD)
Stocks Change (+/-, %) **

CIMB Group +5.1% *
EA Technique +33.3%
Genting +7.4% *
Performance of 2019 suggested picks IJM Corporation +1.8% *
Mega First Corporation +60.9%
Sapura Energy +15.8% *
Serba Dinamik +10.1% *
Ta Ann Holdings +19.3%
Stocks Dropped From Listing

Stocks Why When Chg **
Dayang Enterprise Outperformance Post 4QCY18 reporting +151.0%
Uzma Recommendation change Post 1QCY19 reporting +86.1%
Perak Transit Near-term growth subdued Post 1QCY19 reporting +7.8%
Alliance Bank Recommendation change Post 2QCY19 reporting +7.8%
D&O Green Tech. Recommendation change Post 3QCY19 reporting +12.0%
Note: * Performance since recommended switch ** Change = recommended date to year-high (only during
operative period under review)
Our suggested picks for 2020 are:

Table 15 : 2020 Suggested Picks
Stocks Rationale
AMMB Holdings • Higher-beta cyclical play for market turnaround
• Potential M+A target with value to be unlocked – currently
only at ~0.6x price-to-book
• Forward PE valuation at only ~8x
Genting • Attractive valuations and possibility of Singapore subsidiary
winning integrated resort license in Japan
• Potential earnings upside from plantations arm
2020 suggested picks
Hibiscus Petroleum • Pure-play upstream player
• Currently producing 9,500bbls/day, still planning for
20,000bbls/day by 2020/21 – possibly via acquisition
Johore Tin • Recent capacity expansion and upcoming contribution from
43%-owned Able Dairies Mexico to drive earnings growth
• Potential earnings upside from better cost efficiencies
Magni-Tech Indudstries • Recently completed its 2-phase expansion plan which has
contributed positively to the business
• Better sales owing to US-China trade diversions
Mega First Corporation • Don Sahong hydropower plant will finally start commercial
operations in 2020
• Earnings (and dividends) to jump multi-fold
Sarawak Plantations • Pure-play upstream exposure, expected to see higher
productivity and efficiency in 2020
• Average age profile in sweet spot of ~12 years
• Share price currently at discount to Ta Ann Holdings’ entry
cost of RM2/share
Serba Dinamik • Defensive business nature with steady income stream.
Orderbook is a healthy RM10bn (2.5x FY19 revenue)
SKP Resources • Will spend ~RM90m on machinery in preparation of
increased orders, as per customer guidance
• Earnings upside will also come from margin improvements
due to its vertical inegrations
Ta Ann Holdings • Strong pickup in FFB production growth and recovery in log
export volumes anticipated
The following are key numbers for our Buy and Sell calls.
Table 16 : Outperform / Trading Buy Calls by Market Capitalization
EPS (sen) PE(x)
Market Current Target
Upside
Cap. Price Price 2019 2020 2019 2020
(%)
(RMm) (RM) (RM
LARGE-CAP
CIMB Group 52,095.6 5.25 5.80 10.5% 50.5 54.3 10.4 9.7
IHH Healthcare 47,379.5 5.40 7.00 29.6% 10.4 11.9 51.9 45.4
KL Kepong 26,304.7 24.70 27.42 11.0% 57.4 75.6 43.0 32.7
Genting 22,410.4 5.82 8.70 49.5% 49.2 51.8 11.8 11.2
Outperform/Trading Buy calls Dialog Group 19,395.8 3.44 4.10 19.2% 9.5 11.0 36.2 31.3
Sime Darby 15,643.3 2.30 2.70 17.4% 13.7 14.0 16.8 16.4
AMMB Holdings 11,422.9 3.79 4.50 18.7% 49.9 48.0 7.6 7.9
MID-CAP
Genting Plantation 9,330.9 10.40 13.42 29.0% 19.0 35.4 54.7 29.4
Gamuda 9,352.6 3.78 4.26 12.7% 28.6 23.5 13.2 16.1
IJM Corporation 7,875.9 2.17 2.42 11.5% 11.6 10.6 18.7 20.5
Astro Malaysia 7,039.6 1.35 2.00 48.1% 8.9 12.8 15.2 10.5
Serba Dinamik 6,291.1 2.04 2.56 25.4% 16.0 18.3 12.8 11.2
Sime Property 5,916.7 0.870 1.30 49.4% 8.2 6.3 10.6 13.8
SP Setia 5,497.8 1.36 2.00 47.1% 9.7 10.5 14.0 13.0
Sapura Energy 4,223.9 0.265 0.30 13.2% (4.1) (2.8) - -
Malakoff Corp. 4,202.8 0.86 1.02 18.6% 4.8 4.9 17.9 17.6
Alliance Bank 4,056.0 2.62 3.30 26.0% 34.7 27.3 7.6 9.6
KPJ Healthcare 3,977.3 0.93 1.06 14.0% 4.0 4.2 23.3 22.1
UEM Sunrise 3,448.5 0.760 1.10 44.7% 5.2 3.8 14.6 20.0
Bermaz Auto 2,393.7 2.06 2.51 21.8% 22.9 16.3 9.0 12.6
VS Industry 2,476.3 1.34 1.49 11.2% 7.9 7.9 17.0 17.0
IGB Corporation 2,486.3 3.65 4.70 28.8% 29.3 30.3 12.5 12.0
SMALL-CAP
Mega First Corp. 2,045.1 4.93 5.71 15.8% 20.7 48.9 23.8 10.1
TSH Resources 1,849.4 1.34 1.55 15.7% 2.9 6.0 46.2 22.3
SKP Resources 1,637.7 1.31 1.40 6.9% 7.7 8.4 17.0 15.6
Hibiscus Petroleum 1,492.9 0.94 1.55 64.9% 14.5 12.3 6.5 7.6
Ta Ann Holdings 1,409.5 3.20 4.83 50.9% 13.2 32.8 24.2 9.8
Magni-Tech Ind. 1,101.7 2.54 2.91 14.6% 22.9 28.5 11.1 8.9
LBS Bina Group 773.7 0.50 0.86 72.0% 4.6 5.5 10.9 9.1
Hock Seng Lee 725.4 1.32 1.45 9.8% 10.8 13.1 12.2 10.1
Hextar Global 521.1 0.64 0.95 49.6% 0.3 5.9 - 10.8
Sarawak Plantation 505.0 1.81 2.80 54.7% 5.9 14.0 30.7 12.9
Johore Tin 562.0 1.81 1.84 1.7% 14.7 16.8 12.3 10.8
Chin Hin Group 407.1 0.740 0.94 27.0% 5.2 7.0 14.2 10.6
Perak Transit 334.1 0.235 0.43 83.0% 2.7 3.2 8.7 7.3
3A Resources 364.1 0.740 0.95 28.4% 5.6 6.3 13.2 11.7
CCK Consolidated 341.7 0.55 0.79 45.0% 4.5 5.6 12.1 9.7
SCGM 304.5 1.59 1.82 14.5% (2.6) 6.3 - 25.2
Uzma 276.8 0.87 0.95 9.8% 8.1 8.8 10.7 9.8
I-Berhad 263.2 0.23 0.47 104.3% 1.9 1.8 12.1 12.8
EA Technique 173.9 0.345 0.62 79.7% 5.0 6.2 6.9 5.6
Note: Prices as at 13 December, 2019
Table 17 : Underperform / Trading Sell Calls

EPS (sen) PE(x)
Market Current Target
Upside
Cap. Price Price 2019 2020 2019 2020
(%)
(RMm) (RM) (RM
LARGE-CAP
Underperform/Trading Sell calls
Maxis 39,962.7 5.11 4.80 -6.1% 20.3 20.7 25.2 24.7
Axiata Group 14,422.4 3.83 4.00 4.4% 10.8 11.3 35.5 33.9
Top Glove Corp. 11,237.6 4.39 4.15 -5.5% 14.5 18.3 30.3 24.0
SMALL-CAP
Apex Healthcare 1,085.4 2.30 1.75 -23.9% 11.3 11.4 20.4 20.2
AirAsia X 622.2 0.15 0.14 -6.7% (4.4) 0.4 - 37.5
CJ Century Log. 144.4 0.370 0.30 -18.9% (2.1) (0.7) - -
Note: Prices as at 13 December, 2019
Sector Outlook
Oil and Gas – Chugging Along Nicely
Recommendation: OVERWEIGHT
2019: Fairly stable amid global uncertainty. The trade dispute between the two
major crude oil consumers – the US and China - continues to suppress oil prices,
Prices may find some support in the though prices may find some support in the OPEC+ effort to keep inventories under
OPEC+ effort to keep inventories under control. Prices started off 2019 on a positive note as OPEC’s enforcement of the
control production and supply cut agreement helped improve the supply and demand balance
in the global market. Brent and WTI crude oil prices surged to YTD highs of
USD74.57/bbl (+38.6%) and USD66.30/bbl (+46%) respectively in the 4th week of
April. This did not last long however as prices fell sharply, fuelled by uncertainty about
world economic and global oil demand outlooks amid intensifying trade tensions
between the US and China. That said, oil prices still traded within the USD60/bbl and
USD55/bbl ranges for Brent and WTI.
At one point in mid-September, oil prices surged 15% in just a day, resulting from the
attack on two of the world’s biggest processing petroleum facility in Saudi Arabia.
Brent and WTI oil prices rose above USD68/bbl and USD60/bbl respectively as the
market assessed the damage to global oil supply. This incident affected 50% of the
Recent spike in prices more a signal of kingdom’s production and over 5% of global supply, representing the single biggest oil
geopolitical worries ahead rather than disruption in history, after the loss of Iranian oil in the 1979 Islamic Revolution. In line
supply outage with our view that the spike in prices was more a signal of geopolitical worries ahead
rather than supply outage, oil prices came back down to the realistic levels. YTD, Brent
and WTI are only up 17.6% and 28.5% respectively.
Figure 18: Brent And WTI Crude Oil Prices
Brent WTI
75 Increase uncertainty on Attack on the 2
world economic and oil worlds’ biggest
demand amid intensifying processing
70 US - China trade tensions petroleum facility
in Saudi Arabia
65
60
55 OPEC’s enforcement
has steadily helped
50 improve the supply Trading at their realistic levels, within
and demand balance USD60/bbl and USD55/bbl for Brent and
in the global market WTI, reflecting the fundamental of
45
demand & supply
40
19-Feb-19
11-Mar-19
21-Mar-19
31-Mar-19
10-May-19
20-May-19
30-May-19
9-Jul-19
19-Jul-19
29-Jul-19
9-Jun-19
6-Nov-19
6-Dec-19
31-Dec-18
10-Jan-19
20-Jan-19
30-Jan-19
19-Jun-19
29-Jun-19
8-Aug-19
7-Sep-19
16-Nov-19
26-Nov-19
18-Aug-19
28-Aug-19
17-Sep-19
27-Sep-19
7-Oct-19
9-Feb-19
1-Mar-19
10-Apr-19
20-Apr-19
30-Apr-19
17-Oct-19
27-Oct-19
Will it be sustainable? For 2020, we expect oil prices to continue trading within these
Success of the phase-one US - China levels supported by the continued commitment by OPEC+ in stabilizing oil markets
trade negotiations will result in upsides to through the 24 participating producing countries’ Declaration of Cooperation. Excluding
oil prices as sentiment improves geopolitical risks, we are of the view that oil price movements are very much supported
by policies dictated by OPEC and Russia – the largest producers in the world.
Nevertheless, we foresee success of the phase-one US - China trade negotiations
resulting in upsides to oil prices as sentiment improves. Success of the deal will be a
boost to a global growth, pushing demand recovery amid projected weakness in the
Dollar.
Currently, growth in world oil demand is forecast to grow by just 1 mbbls/day (from 1.4
mbbls/day at the beginning of 2019) and 1.2 mbbls/day (from 1.4 mbbls/day forecasted
earlier in June 2019) with total world consumption of 100.3 mbbls/day and 101.5
mbbls/day in 2019 and 2020 respectively. The lower projection comes about after few
rounds of adjustment have been made, taking into account a weaker outlook for the
global economy due to slowdowns in several major consuming regions and countries
including Europe, India, Japan, Korea and the US. Oil demand growth in China is, in
contrast, holding up this year.
Figure 19: World Liquid Fuels Production and Consumption Balance
Source: EIA, PublicInvest Research
OPEC+ to continue supporting the market. The recent OPEC+ meeting in Vienna
saw producers agreeing to extend output cuts by an additional 500,000 bbls/day in the
Aggregated global production curb of 2.1 first three months of 2020, effective 1st January 2020. This will result in adjustments of
mbbls/day 1.7 mbbls/day from 1.2 mmbls/day. Several participating countries, particularly Saudi
Arabia, will continue its additional voluntary restriction of 400,000 bbls/day, leading to
aggregated global production curb of 2.1 mbbls/day. Meanwhile, the Russian Energy
Minister also affirmed his country’s quota would be 300,000 bbls/day in the first three
months of 2020.
Figure 20: Historical Compliance 2019 by OPEC+
To recap, OPEC+ had agreed last year to reduce volumes by about 1.2 mbbls/day to
eliminate surpluses and bolster crude prices. In reality, the alliance has cut far deeper
for most of 2019 due to a combination of voluntary and involuntary measures. Level of
compliance to-date (up to October 2019) has been inspiring with average of 146% by
Provides the stability and support to oil OPEC members and 110% by the non-OPEC group. The group’s Joint Technical
prices amid continuously rising US shale Committee concluded that supply reductions exceeded that target by about 40% in
production and slowing economies October, equivalent to about 500,000 bbls/day of additional curbs. As such, we do not
see the OPEC+ recent decision to cut an additional 500,000 bbls/day leading to higher
oil prices, though it
Global activities on the rise… The recovery in exploration and production

Global activities on the rise… investment, which began in 2017 after two years of sharp decline, continued in 2018
and 2019. Upstream investments are estimated at approximately USD382bn, up
USD24bn (+7%) from 2017. However, this level remains about 40% below the
maximum reached in 2014 (USD655bn). As for global job awards to the offshore
market, it has inflected in 2017 with around USD41bn awarded, and grew to reach
USD43bn 2018. As of 1Q2019, it is tracked that a total of USD32bn of projects has
been awarded in the market. Key drivers to the project award activity have been the
subsea and LNG markets. The rise in greenfield subsea investment is reflected in a
robust floating production market which has provided opportunities across Brazil,
Guyana and others.
…likewise for domestic market. …likewise for domestic market. Petronas’ capital expenditure (capex) in 3QFY19
increased to RM13bn (+75.7% QoQ), bringing its 9MFY19 capex to c. RM29bn. This
makes up just about 58% of its RM50bn total allocation for the year. The improvement
is in line with Petronas’ earlier commitment to deploy another RM35bn capex in the 2H
of which 50% (RM17.5bn) will be allocated for domestic investments. As such, we
expect to see lumpy capex in 4QFY19, with key beneficiaries including brownfield and
maintenance players such as Dayang Enterprise, Carimin Petroleum, Petra Energy,
Deleum, Uzma and others. Vessel players like Perdana Peteroleum, Icon Offshore and
Alam Maritim will also be beneficiaries from higher capex by Petronas.
Figure 21: Petronas Capital Expenditure
RM bn
Domestic International
70
60
25.5
29.8
50
10.1
24.3
7.6
14.3
40
21.5
17.8
16.9
39.1
10.3
11.5
17.6
34.9
30
32.3
30.7
12.3
40.3
36.9
20
26.8
26.2
25.3
24.3
23.4
20.0
16.4
10
0
2008 2009 2010 2011 2011 2012 2013 2014 2015 2016 2017 2018F 2019F
Source: Petronas, PublicInvest Research
Moving into next year, we expect the momentum will continue with the same amount of
Momentum will continue with the same
capex allocated as oil prices remain stable at the current level. We may even see
amount of capex allocated
higher allocations for upstream oil and gas activities as Petronas has already stated
that it is expecting RM167.6bn in upstream investments over the next five years to
arrest falling production in domestic oil and gas fields and drive growth overseas after
few years of under-investment. Drilling, fabrication, and FPSO players will be
beneficiaries. We keenly anticipate the upcoming Petronas activity outlook for 2020-
2022, likely to be released by the end of December.
Maintain Overweight. We maintain our Overweight stance on the sector as we

anticipate oil prices remaining stable at current levels, with possible upsides should the
phase one US – China trade deal bear significant fruit. Global activities are picking-up
with more job tenders and awards taking place. We expect work progress to sustain,
consequently translating into stable earnings. Although the OPEC+ arrangement does
Sector preferences are Serba Dinamik not help oil prices trend higher, it does however provide a floor to prices, thereby
and Hibiscus Petroleum supporting the market. Our sector preferences are 1) Serba Dinamik given its
defensive business nature and stable earnings streams, with its earnings outlook
expected to remain steady, underpinned by its long-term recurring earnings from the
O&M segment, and 2) Hibiscus Petroleum given its stable production from its two
producing assets with potential acquisition of another producing asset boosting its
production levels and earnings.
Plantation – Positive Price Outlook

Tightening palm oil supplies. Palm oil supplies are expected to tighten in the coming
Decline in FFB production could be more
months as oil palm trees enter the seasonal low-cycle period. The decline in FFB
severe this round given that most
production could be more severe this round given that most smallholders have
smallholders have significantly reduced
significantly reduced their fertilizer application in the past due to budget constraints
their fertilizer application
when the CPO prices were on the downtrend Smallholder plantation landbank account
for 17% and 41% in Malaysia and Indonesia respectively. To our surprise, our findings
reveal that not only have smallholders cut down their fertilizer application this year, a
number of public-listed plantation companies have also held back their fertilizer
application. The fall in production could be more severe as several leading plantation
companies, namely, FGV Holdings, IOI Corporation, KL Kepong and Sime Darby
Plantation have carried out more aggressive replanting activities this year. We foresee
downside risk in Malaysian production next year compared to the estimated annual
production of 20m mt this year. Meanwhile, Indonesian production may also see
downside risk, dragged by the lagged effect of dry weather this year as well as weaker
Weakest production growth in a decade
contribution from smallholder plantation as a result of significant reduction in fertilizer
application. Various industry experts foresee Indonesian production growth in 2020 to
slow from 8%-9% per annum to 1-2% (up by 1m mt to 44m mt), the weakest
production growth in a decade.
Figure 22: Monthly Production vs CPO Price
Production ('000 mt) CPO Prices (RM/mt)

RM/mt '000 mt
3,500 2,500
3,000
2,000
2,500
2,000 1,500
1,500 1,000
1,000
500
500
0 0
Jul-16
Jul-17
Jul-18
Jul-19
Nov-15
Jan-16
Jan-17
Jan-18
Jan-19
Sep-16
Nov-16
Sep-17
Nov-17
Sep-18
Nov-18
Sep-19
Nov-19
Mar-16
Mar-17
Mar-18
Mar-19
May-16
May-17
May-18
May-19
Source: MPOB, Bloomberg, PublicInvest Research
China’s palm oil demand may stay strong

China’s demand to stay strong on African Swine Flu. China’s palm oil demand
through 2020
may stay strong through 2020 as the shrunken swine herd struggles to recover. This
has caused less consumption of soybean meal, limiting both soybean crushing and its
by-product, soybean oil. Palm oil provides a ready substitute. China’s massive loss of
sow herd will limit piglet production even after the fever crisis fades, keeping the herd
size in check. Our latest findings show that China’s pork output may not recover to pre-
African swine flu levels until 2021, as it would need to import 20m sows, a third of the
world’s stock, to shore up herds. China’s consumption of edible oil has risen, as the
2.6m mt imported through to October has exceeded the 985,976mt reduction in

implied soybean oil supply from crushing imported soybeans. For the first ten months
this year, China’s palm oil imports hit a record high of 5.9m mt, a staggering growth of
44% YoY.
Figure 23a : Market Share In China Figure 23b: Market Share In India
(mt) Malaysia (%)

Malaysia
China's Palm Oil Imports India's Palm Oil Imports
(mt) Mkt Share (%) (%) Mkt Share (%)
7,000,000 80 12,000,000 60
67 70 52
6,000,000
62 10,000,000 50
5,000,000 60
53 41
55 50 8,000,000 39 40
4,000,000 40 42 34
38 35
32 40 6,000,000 29 30
3,000,000
30 22
2,000,000 4,000,000 20
20
1,000,000 10 2,000,000 10
0 0 0 0
10M2019
2011
2012
2013
2014
2015
2016
2017
2018
10M2019
2014
2015
2016
2017
2018
Markets generally foresee stronger CPO Sustainability of palm oil prices depends on speed of production recovery. The
prices of RM2,700/mt-2,800/mt in 1H sudden surge in palm oil prices has indeed brought much needed cheer to the palm oil
2020 as palm oil inventories in Malaysia industry after suffering from the poor price performance for two straight years. Since
will probably fall below the psychological hitting at 4-year low of RM1,937/mt in July, CPO futures had surged to the current
level of 2m mt level of RM2,900/mt, a massive gain of more than 50%. The question now lies on
whether the current CPO prices are sustainable. Markets generally foresee stronger
CPO prices of RM2,700/mt-2,800/mt in 1H 2020 as palm oil inventories in Malaysia will
probably fall below the psychological level of 2m mt from the current level of 2.3m mt.
The easing of CPO prices will depend on the speed of production recovery in 2H 2020.
Figure 24: CPO Futures
RM/mt
3,100
2,904
2,900
2,700
2,500
2,300
2,100
1,900
1,700
1,500
Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-1
Figure 25: Monthly Stock-Usage Ratio vs CPO Prices
RM/mt %
Stock/Usage Ratio CPO Prices (RM/mt)
3,500 18.0
16.0
3,000
14.0
2,500
12.0
2,000 10.0
1,500 8.0
6.0
1,000
4.0
500
2.0
0 0.0
Jul-16
Jul-17
Jul-18
Jul-19
Nov-15
Jan-16
Sep-16
Nov-16
Jan-17
Sep-17
Nov-17
Jan-18
Sep-18
Nov-18
Jan-19
Sep-19
Nov-19
Mar-16
Mar-17
Mar-18
Mar-19
May-16
May-17
May-18
May-19
Industry earnings growth of more than 50% YoY. Our sensitivity analysis suggests
that for every RM100/mt increase in CPO prices, earnings will be boosted by as much
For every RM100/mt increase in CPO as 10%-20%. Upstream producers will be more sensitive to CPO prices as margins
prices, earnings will be boosted by as are expected to expand on the back of stronger sales as well as a sharp decline in
much as 10%-20% CPO production cost. With the exception of IOI Corporation, the rest of the plantation
players under our coverage have more exposure in the upstream business. Coming
from a low base, we see staggering earnings growth of more than 50% in FY20 for all
upstream plantation players under our coverage.
Overweight on the sector outlook with higher CPO price assumption. Since our
upgrade on the sector outlook in early-October, CPO futures have rallied by more than
32% to RM2,900/mt. We believe CPO prices may sustain around the RM2,700/mt-
Top picks are Sarawak Plantation, TSH 2,800/mt levels in the coming months due to the tightening CPO supplies in the global
Resources and Ta Ann Holdings markets This will be a boon to all plantation companies after suffering from the poor
CPO price performance over the last 2 years. We are overweight on the plantation
sector with a CPO price forecast of RM2,600/mt for 2020. Our top picks are Sarawak
Plantation, TSH Resources and Ta Ann Holdings.
Healthcare – Still Healthy Going Into 2020

Higher Budget 2020 allocation. Total allocation granted to the Ministry of Health
(MoH) has been raised by 6.6% YoY to RM30.6bn, from RM28.7bn previously. The
In line with the government’s objective to allocated sum will be mainly used to upgrade public clinics and hospitals, improving
make healthcare more accessible for overall quality of health services provided, as well as to procure pharmaceutical drug.
Malaysians The higher allocation for MoH is in line with the government’s objective to make
healthcare more accessible for Malaysians.
Ageing population to support growth. Moving into 2020, we expect demand for
Demand for healthcare to remain robust, healthcare to remain robust, mainly driven by ageing population, wider medical
mainly driven by ageing population, wider insurance coverage, rising affluence and the increasing prevalence of non-
medical insurance coverage, rising communicable diseases. As the percentage of old age population (aged 65 and above)
affluence and the increasing prevalence in Malaysia continues to be on the rise as it did in the past 2 decades, we believe this
of non-communicable diseases. will help support healthcare demand growth going into the future, considering that old
age is often equated to higher instances of age-related disease and increased needs
for regular wellness care. According to the Department of Statistics in Malaysia, old
age population should reach 7.2% of Malaysia’s total population in 2020, as opposed
to 6.5% in 2018. Ageing population would also be favorable to KPJ Healthcare’s (KPJ)
Senior and Assisted Living Care business. Currently KPJ’s senior living care business
has presence in Kuala Lumpur, Pahang, Sabah and Sarawak. Moving forward, the
Group is looking to expand into Selangor and Johor, where the old age population is
expected to grow to 12% and 14% respectively, by year 2025.
Figure 26 : Malaysian Population By Age, 1998 – 2018 (%)
Aged 0-14 years Aged 15-64 years Aged 65 and above
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0% 1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Medical tourism. The government remains committed to grow the medical tourism
Government remains committed to grow industry in Malaysia and has allocated a sum of RM25m to the Malaysian Healthcare
the medical tourism industry in Malaysia Travel Council (MTHC) in Budget 2020, to further solidify Malaysia’s position as the
leading global destination for medical tourism, with a focus on cardiology, oncology
and fertility treatment. Note that treatments in these three areas of focus are generally
higher in value; hence we expect the overall revenue intensity for private healthcare
providers like KPJ and IHH to increase going forward, as they treat more foreign
Overall revenue intensity for private patients.
healthcare providers like KPJ and IHH to
increase going forward Malaysia Year of Healthcare Travel 2020 (My) campaign will also be launched in
conjunction with Visit Malaysia Year 2020, aiming to attract 2 million medical tourists in
2020, from 1.8 million of medical tourist arrival in 2018. We note that as at the time of
writing, medical tourist only accounts for less than 5% of KPJ’s total revenue, while c.
6% of IHH Malaysia operations’ revenue is contributed by foreign patients. That said,
we believe there is still ample room for the private hospital operators to grow in tandem
with the Malaysian medical tourism industry.
Figure 27 : Number of Medical Tourists In Malaysia, 2011 – 2018 (in ‘000)
Number of Medical Travellers (in '000)

2,500
2,000
2,000
1,500
1,500
1,200
1,050
881 882 859 921
1,000
728
643
500
-
2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F
Source: Malaysia Healthcare Travel Council, PublicInvest Research
Breaking up concessions. In an attempt to break up cartels in the market, the

government had previously announced that Pharmaniaga’s exclusive concession will
not be renewed when the concession expires in November 2019. Under the
concession, Pharmaniaga was assigned to procure and distribute pharmaceuticals
under the APPL to public hospitals and clinics. Note that MoH is currently planning to
introduce and fully migrate into an open tender system. However, in order to avoid any
supply disruption, MoH has decided to extend the concession temporarily for another
25 months, while the ministry decides on the appropriate mechanism to manage the
new open tender system. We view this termination of concession by MoH positively, as
we note that not all drugs under the APPL procured by Pharmaniaga undergoes the
open tender process, but rather Pharmaniaga will approach the respective suppliers
Pharmaceutical companies will benefit directly to procure some of the drugs. Therefore, we believe that pharmaceutical
from the full migration to an open tender companies under our coverage, like Apex Healthcare, will benefit from the full
system migration to an open tender system as they might stand a better chance in bidding for
more government tenders going forward.
Banking –Momentum Stalling?

Recommendation: NEUTRAL
Loan applications remain erratic. October’s +3.2% YoY expansion comes against
Demand for credit is still healthy, albeit the backdrop of inconsistencies (Sep: -6.1%, Aug: -0.3%, Jul: +0.5%, Jun: -11.3%).
on a moderating scale While signs are starting to get a little worrying, we are not raising alarm bells as yet
considering the quantum remains at a fairly robust RM81.7bn, indicating that demand
for credit is still healthy, albeit on a moderating scale. The household sector continues
to lead by value, particularly mortgages (+5.0% YoY), though there are encouraging
pickups in some business-related loans (working capital: +9.2% YoY, purchase of
securities: +74.9%). We see further pickups on the business front to drive growth
momentum going forward.
Overall loans growth. On account of the weak applications, it is no surprise that loans
Loans growth momentum has slowed to growth momentum has slowed to +3.7% YoY in October, the slowest since publicly-
+3.7% YoY in October, the slowest since available data (2006) published in Bank Negara Malaysia’s website. We see this
2006 slippage as temporary however, with the government’s recent expansionary budget for
2020 likely to drive more robust credit demand in the months ahead, thereby driving
growth back toward the +4.5% to +5.0% levels.
With household loans already making up 58.3% of system loans, growth momentum
Growth momentum going forward will going forward will likely have to be driven by gains in business-related loans, though
likely have to be driven by gains in the government’s constant efforts to alleviate living cost issues will improve consumer
business-related loans, sentiment, and filter through to the banking system. To note, mortgage loans make up
~80% of household loans and a relatively significant ~47% of system loans.
Figure 28: Loans Growth, Key Sectors, YoY Chg
Residental Passenger Cars Construction

Working Capital Total Loans
30.0%
20.0%
10.0%
0.0%
-10.0%
-20.0%
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Asset quality issues. Banking stocks continue to see sporadic selling pressure on
Expect recoveries in economic growth concerns of earnings degradation due to asset quality issues. While there has been a
momentum to eventually improve notable rise in recent months, we still don’t think this is chronic, and expect recoveries
repayment capabilities. in economic growth momentum to eventually improve repayment capabilities.
Normalization of credit costs may slow financial institutions’ bottom-line improvements,
but we do not see asset quality issues to be causing significant slippages.
Figure 29: Non-Performing / Impaired Loans, YoY change
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Selective exposure still suggested. While we maintain our Neutral view on the
sector, it continues to be with a positive bias given its lagging valuations relative to the
broader market. While the sector is seemingly headed for a perfect storm of slowing
loans growth and weakening asset qualities, we are cautiously optimistic of recoveries
in the near to medium term. For sector exposure, we like CIMB Group and AMMB
Holidngs.
Telecom. – Escalating Costs Limiting Earnings Growth

Escalating costs. We expect both opex and capex to rise as telcos continue to invest
in new businesses and upgrade network infrastructure. By diversifying more
Cost is expected to rise on the back of aggressively into enterprise business, which requires investment in fibre network as
upgrade of network infrastructure, well as human capital, operating costs are expected to rise. In addition, telcos are
investment into digital businesses as well investing into new businesses (i.e. digital services, data analytics etc) that could incur
as higher marketing and manpower costs initial capital outlay without generating new income stream during the early stage. This
could further erode their cash reserves and profit margins going forward. Note that we
do not expect revenue growth to be exciting as the traditional cash-cow business
(mobile services) remains saturated given the high penetration rate.
Nationwide connectivity should be a combination of fiber and wireless. To

expand and encourage the adoption of high-speed broadband, we believe fixed fibre
Re-allocation of the valuable 700MHz may not be the most cost-effective approach, particularly in the rural areas. It is more
spectrum is expected to give emphasis to economically viable to build new communication towers for mobile connectivity, thus
rural connectivity and less on the not limiting to fibre which is more expensive and time consuming to deploy. Although
economic benefit of improving urban we estimate that there are c.5m households that currently do not have access or
connectivity subscription to high-speed fixed broadband, some would already have subscription to
mobile broadband. We are of the view that wireless will be a better option in deploying
affordable high-speed broadband nationwide. Hence, we believe that the upcoming
700MHz spectrum re-allocation, which is expected to take place in 1H20, would give
more emphasis to rural coverage.
5G is still far from commercialisation. 5G has become a popular topic in recent

months but we believe that full adoption is not likely to take place in the next 2-3 years.
One of the biggest challenges facing the telco players is cost. The cost of building a
High cost of deployment, low economic nationwide 5G network is estimated to be in billions of ringgit with infrastructure (i.e.
needs and shortages of talent means 5G small cell towers) being a big chunk of the cost. Secondly, there is an absence of
commercialisation is still a distant away strong demand for 5G as current connectivity issues faced by enterprises can largely
be resolved with the optimisation of 4G network, which is still lacking due to congestion
and inefficiency. Hence, we still see room for improvement for current services
provided under the 4G technology. It is also worth nothing that there is still shortage of
talent in sustaining the country’s long-term 5G ambitions. All in all, we see hefty
deployment cost, inadequate economic needs and shortages of talent as the key
obstacles to 5G commercialisation.
Maintain Neutral. 2020 is expected to be another uninspiring year for the telcos as
Earnings growth may be capped by rising growth in revenue derives from expanding postpaid and home fibre subscription as
costs as revenue growth is not expected well as greater penetration for enterprise business may be offset by escalating costs.
to be strong Costs may remain elevated as telcos will be required to upgrade and invest in network
infrastructure. In our view, with the telcos being tasked to achieve the NFCP objective
of providing widespread availability of affordable broadband at higher speed, the high
cost of deployment and low economic return should be counterbalanced by
government subsidies and funding. Earnings growth is likely to remain muted over the
next 2 years. Also to note, yield play is no longer an investment proposition for the
sector given slower earnings growth and the need to preserve cash for network
upgrades and improvements. We have an Underperform rating on Maxis and Neutral
on DiGi and Telekom. Axiata is rated Trading Sell as we see risk of provision due to
the disputed tax liability in Nepal.
Figure 30 : Prepaid ARPU (lhs) and Postpaid ARPU (rhs) – RM/month
Maxis DiGi Celcom Maxis DiGi Celcom

43
115
40
105
37
34 95
31 85
28 75
25 65
1Q13
4Q13
3Q14
2Q15
1Q16
4Q16
3Q17
2Q18
1Q19
1Q13
4Q13
3Q14
2Q15
1Q16
4Q16
3Q17
2Q18
1Q19
Source: Company, PublicInvest Research estimates
Figure 31 : Prepaid Subscribers (lhs) and Postpaid Subscribers (rhs) – ‘000 units
Maxis DiGi Celcom Maxis DiGi Celcom

12,000
4,000
11,000
10,000 3,500
9,000 3,000
8,000 2,500
7,000 2,000
6,000 1,500
5,000 1,000
1Q13
4Q13
3Q14
2Q15
1Q16
4Q16
3Q17
2Q18
1Q19
1Q13
4Q13
3Q14
2Q15
1Q16
4Q16
3Q17
2Q18
1Q19
Source: Company, PublicInvest Research estimates
Construction – Positives Currently Priced-In

Year of 2019 - full of hope. With not much happening for the year, excitement in the
industry, particularly in 1H, was the revival of the East Coast Rail Link (ECRL) and
Bandar Malaysia projects. Investor sentiment improved, reflected by the KL
Share prices of construction companies Construction (KLCON) Index jumping by c.30.4% YTD, outperforming the FBM KLCI
having already re-rated ahead of the by c.22.8%. Share prices of construction companies having already re-rated ahead of
actual contract awards nevertheless the actual contract awards nevertheless, hence seeing much of the positives already
priced-in.
Figure 32: FBM KLCI vs KLCI Construction Index
1750 FBMKLCI Index Last Price KLCON Index Last Price 240
1730
220
1710
1690
200
1670
1650 180
1630
160
1610
1590
140
1570
1550 120
3-Dec-18 3-Feb-19 3-Apr-19 3-Jun-19 3-Aug-19 3-Oct-19 3-Dec-19
Contract awards slowed in 2H2019. While 1H2019 contract awards surged by 31.4%
as compared to 1H2018, it slowed considerably within the period of July to November
however. We observe that while there is not much difference in terms of the number of
contract, the sizes contracted. 68% of the total number of projects awarded were
valued at <RM100m as compared to last year where only ~48% were contracts of
smaller value. This has consequently resulted in the weaker overall value YTD (up to
November 2019) awards of just RM10.7bn, down by 17.1% from RM12.9bn in the
same period of last year.
Mildly expansionary stance has been …but expected to pick up in 2020 as a mildly expansionary stance has been
adopted for the government’s 2020 adopted for the government’s 2020 budget with allocation of RM56bn for development
budget expenditure, a slight increase from the RM54.7bn allocated in 2019. The new big ticket
projects that will take place are ECRL with sub-contracts worth RM17.6bn (40% of
total project value of RM44bn) and Johor Bahru (JB) – Singapore Rapid Transit
System (RTS) valued at approximately RM4bn. The Pan Borneo Highway (PBH)
Sabah tenders are also will be the main focus for next year. The tenders for major
developments in Sarawak such as the RM11bn upgrading works for the coastal road,
second trunk road and water supply works will also continue as it received the second
largest portion from the development expenditure budget after Sabah. Further
excitement would come in 2H2020 with the Phase 1 award of the Penang Transport
Master Plan (PTMP) project, comprising of Bayan Lepas Light Rail Transit (LRT) worth
RM8.5bn and Pan Island Link 1 (PIL 1) at RM7.5bn, should the funding schemes be
sorted out.
The Government is also projecting higher
construction GDP growth in 2020 Incidentally, the Government is also projecting higher construction GDP growth in
2020, expanding from 1.7% to 3.7%. On-going projects like the MRT 2 SSP Line, LRT
3, Pan Borneo Highway Sarawak, Gemas – Johor Electrified Double Track (EDT)
Central Spine Road and Klang Valley Double Track 2 will continue driving growth next
year.
Table 18: List of Projects

Est.
Target
Projects Value Beneficiaries
Completion
(RM bn)
MRL-CCCC
East Coast Rail Link (ECRL) 44.0 2026
(40% local contractors)
MMC - Gamuda (main),
MRT 2 SSP Line 30.5 Mid 2022
Various (sub-con)
MRCB - George Kent
LRT 3 16.6 2024
(main), Various (sub-con)
Zecon-Kimlun, Naim-
Pan Borneo Highway 29.4 2021 Gamuda, TRC, HSL,
Mudajaya, KKB-WCT
JB – Singapore Rapid Transit Under
4.0 --
System (RTS) Negotiation
Gemas - Johor Electrified Chinese Consortium, YTL
8.9 2021
Double Track (EDT) Corp
Central Spine Road 7.2 2020 Various
Coastal Highway Sarawak 11.0 2023 HSL
Klang Valley Double-Tracking
4.5 2026 Dhaya Maju - LTAT
2
165km Trans-Borneo Under
>0.6 -
Highway Planning
Corridor development:
Northern Corridor Economic
East Coast Economic Region
Iskandar Regional Dvlp 0.2 -- --
Regional Corridor Dvlp
Sabah Economic Dvlp
Road maintenance (MARRIS

4.8 -- --
fund)
Rural roads – Sabah 0.3
Rural roads – Sarawak 0.2 -- --
Rural roads - Peninsular 0.4
Hospitals & Clinics 1.9 -- --
Various schools 0.7 -- --
Source: Budget 2020 speech, PublicInvest Research
Earnings outlook stabilizing starting next Earnings to stabilize starting next year. As of the September 2019 reporting
year, underpinned by healthy order books season, we observe that most construction companies are still struggling to see
in hand with visibility for at least 2 years stability in their quarterly numbers. Reported earnings are still volatile despite having
higher topline growth. This is on account of inconsistent profit margins that could be
due to the construction progress timing, product mix, and/or change in the project
scope and structure. Nevertheless, we see the earnings outlook stabilizing starting
next year, underpinned by healthy order books in hand with visibility for at least 2
years coupled with the continuous efforts by respective managements to contain costs.
View and valuation. We maintain our Neutral rating on the sector as we believe all
We have preference for Gamuda, IJM the positives are already been priced-in. The KLCON index is currently trading at 13.2x
Corporation and Hock Seng Lee forward PER, within 5-year average of 13.3x which we deem it is a fair valuation for
the KLCON index for now, against the previous fair range of 15x-16x before 2018. The
sector will re-rate only when the government revives the other large-scale projects,
boosting construction companies’ order book and earnings. Within our construction
universe, we have preference for Gamuda, IJM Corporation and Hock Seng Lee.
Property – Lacking Catalysts

KL Property Index or KLPRP has traded Sector valuations remain depressed. The sector i.e. KL Property Index or KLPRP
stubbornly at c.-2SD (standard deviation) has traded stubbornly at c.-2SD (standard deviation) to its average price, reflecting
to its average price, reflecting current current demand challenges. While the 25bps OPR rate cut in May offered some
demand challenges. reprieve, we are of the view that the impact is not material enough to drive the still-
sluggish property demand. Launches are obviously slowing with most developers still
clearing unsold stocks. Malaysia’s household debt level has remained elevated. As
such, with pressing issues like the high unsold inventory units in the market, low
absorption rates, stringent mortgage approvals, and competitive marketing promotion,
property sales are expected to be challenging in the near term.
Figure 33 : KL Property Index Price to Book
Price to Book Ratio +1SD -1SD

1.4 +2SD -2SD Average
1.2
1.0
0.8
0.6
0.4
0.2
0.0

Impact from Bank Negara Malaysia’s
(BNM) overnight policy rate (OPR) cut by Minimal impact from interest rate cut. The impact from Bank Negara Malaysia’s
25 bps in May 2019 to 3% was minimal in (BNM) overnight policy rate (OPR) cut by 25 bps in May 2019 to 3% was minimal in
our view our view to spur property demand. We believe that this is only a short-term boost as
the sector continued to be dampened by the structural issues such as property
overhang and affordability.
Home Ownership Campaign (HOC) was extended until end of 2019 from its original
timeline of Jun 2019 in order ease the pressure on the Malaysian property market. The
incentives and benefits offered under HOC 2019 are as follows:
• Stamp duty exemption on property sales and purchase agreements

(SPA) for properties priced up to RM1m and for loan agreements of
up to RM2.5m
• Minimum 10% discount on property from developers
• Mortgage support for first-time homebuyers with a household income
of up to RM5000 by Cagamas Bhd
• Schemes to assist first-time homebuyers – Youth Housing Scheme,
My First Home Scheme, MyDeposit, FundMyHome+Depositku, BNM
Fund for Affordable Homes
We understand that it has generated RM14.65bn in sales from 19,784 units of

properties sold as at September this year. While positive, we believe that there will be
a demand vacuum once HOC expires end-2019 and could see property sales dip in
1H2020.
Purchasers spoilt for choices, developers Squeezed margins. We believe that property developers’ margins could continue to
will find it difficult to pass on costs via be squeezed in the challenging environment. With purchasers spoilt for choices,
higher selling prices developers will find it difficult to pass on costs via higher selling prices. That said,
developers with low land cost will have the edge in remaining competitive currently.
We also notice that the main focus of most developers is still on clearing inventories by
offering discounts. Despite selling at lower margins, this inventory clearing enables
developers to monetize the assets and strengthen balance sheet to weather through
the prolonged demand weakness. We understand that statistics by REHDA indicated
the number of launches was down by 12% in 1H2019 although sales performance was
up 15% for the same period which indicates that most players are still clearing
inventories.
Property overhang. Residential overhang increased in 1H2019 with bulk of the

overhang units being condominiums and apartments. There were 32,810 residential
overhang units worth RM19.76bn, an increase in volume of 1.5% YoY whilst the value
decreased by 0.5% YoY. Condominium and apartment units comprised 43% of the
overhang.
Table 19 : Residential Property Overhang, 1H2019
Value Value
Price range (RM) Units (RM m) (%)
<RM100k 2100 133.4 0.7
RM100k-200k 2,083 358.9 1.8
RM200k-300k 7,328 1,787.2 9.0
RM300k-400k 5,731 1,993.6 10.1
RM400k-500k 3,057 1,393.7 7.1
RM500k-600k 2,589 1,429.9 7.2
RM600k-700k 2,628 1,687.0 8.5
RM700k-800k 1,073 809.7 4.1
RM800k-900k 1,443 1,225.0 6.2
RM900k-1m 565 550.7 2.8
>RM1m 4,213 8,391.3 42.5
Total 32,810 19,760.4 100.0
Source: Jabatan Penilaian and Perkhidmatan Harta (JPPH), PublicInvest Research
Most developers will find it difficult to
ramp up sales as they deplete their Maintain Neutral. With limited catalysts seen in the near term, we maintain our
unbilled sales, suggesting weak earnings Neutral stance. We are of the view that most property developers would find it difficult
visibility going forward to ramp up sales as they deplete their unbilled sales, suggesting weak earnings
visibility going forward. Additionally, the sector’s supply glut will only worsen as some
property players could be more aggressive in pricing in order to reduce the unsold
stocks. Property stocks are currently trading at multi-year lows at ~0.5 price/book value
which is 2SD (standard deviation) below its 10-year mean but we believe risk/reward is
For stock picks, we still like SP Setia, not attractive as yet due to lack of near-term catalysts. All told, we believe the sector’s
UEM Sunrise and LBS Bina valuation could continue to trade below its average valuation given current headwinds.
For stock picks, we still like SP Setia, UEM Sunrise and LBS Bina for undemanding
valuations and attractive well-located landbank with plans to monetise non-core assets
that could ease liquidity requirements in view of soft property demand.
REITs – Limited Upside

Maintain Neutral recommendation as we believe that the risk-reward is not attractive

currently with the sector on average having advanced more than 10% YTD. Some
REIT players such as Axis REIT, IGB REIT and Al-‘Aqar REIT have increased c.20%
YTD.
Subdued organic growth. Near term, we expect the demand-supply dynamics for
Demand-supply dynamics for commercial commercial and retail space in Malaysia to continue to be lackluster given oversupply
and retail space in Malaysia to continue concerns. That said, we believe selected Malaysian REITS’ (M-REITs) rental earnings
to be lackluster given oversupply should remain resilient given the long-term leases and well established matured
concerns assets. As such, our preference are counters such as integrated prime retail mall
owners like IGB REIT, Sunway REIT and Pavilion REIT which we believe should
continue to enjoy high occupancy despite the onslaught of incoming new retail malls.
Oversupply concerns. Commercial space, retail and office, are facing oversupply
issues in the near term. According to the Valuation and Property Services Department
(JPPH), the average rate of unoccupied office space in the region stood at 23.5% in
the first quarter of 2019, compared with 22.6% in the first quarter of 2018. We
Incoming retail space is expected to grow understand that there will be more than 21.53m sq ft of office space in the pipeline.
by 13.5% to 78.4mst in 2022 if all 18 Upon completion, it will inject another 12% to the current existing space. Similarly,
projects presently under construction are retail supply in the Klang Valley is expected to rise to 69.1msf in 2019 according to
completed on time which could worsen Savills Research, following the completion of 4.8msf of lettable retail space this year.
the glut. The incoming retail space is expected to grow by 13.5% to 78.4mst in 2022 if all 18
projects presently under construction are completed on time which could worsen the
glut.
Yield spread among lowest. The pause in domestic interest rates, at least for 2019,
could stymie the performance of M-REIT which saw some of the REIT players’ share
prices rising c.20% YTD, outperforming the FBM KLCI by a distance. FY19 average
gross yield for MREIT is at 4.9% against 10-year MGS yield of 3.4%, providing a yield
spread of 150bps. As comparison, Japan’s yield spread is 400bps while Singapore’s is
370bps
Figure 34 : MREIT Yields vs 10-year MGS
Spread MREIT 10-year MGS

8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
-
1/28/2016 1/28/2017 1/28/2018 1/28/2019
Gaming – No Positive Surprises In Near Term

Tougher combat against illegal activities. To curb illegal gambling, the government
Enforcement remains the key in ensuring has proposed a higher minimum mandatory penalty of RM100,000 and RM1m for
the effectiveness of measures to curb illegal gamblers and illegal operators, along with a minimum mandatory jail sentence of
illegal gambling 6 months and 12 months respectively. Meanwhile, the total number of special draws
for the Number Forecast Operator (NFO) will be reduced to 8 times from next year
onwards. This is a further reduction of about 30% from the current 11 special draws a
year. Last year, the NFO sector was hit by a 50% reduction in special draws. We
estimate that Berjaya Sports Toto’s (Btoto) FY20-21F earnings will be reduced
marginally by <2% once the reduction to 8 draws a year is implemented. Although the
imposition of higher penalties and jail terms should deter the proliferation of illegal
gambling activities, enforcement remains the key in ensuring the effectiveness of this
measure. We note that ticket sales for NFOs have improved in recent quarters, largely
due to the clamping down of illegal 4D outlets but online activities remain rampant and
more difficult to control.
Higher taxes and capex to affect earnings
growth in Singapore Higher taxes and capex to affect earnings growth in Singapore. In two years’ time,
Singapore casinos will face higher taxes following the government’s announcement of
new tiered tax structure in April 2019. The new tax structure will take effect in 2022
where the first SGD2.4bn premium gaming revenue will be taxed at 8% while anything
above will be taxed at 12%. For mass gaming, first SGD3.1bn will attract 18% tax
while the excess will be taxed at 22%. The current tax rates are 5-15% with no tiering.
Simultaneously, a SGD4.5bn expansion plan was also announced, extending the
Universal Studio Singapore to include new attractions. Prior to this, Genting Singapore
was seen as a stable earnings contributor to Genting Bhd (GENT). Following these
announcements, Genting Singapore’s earnings in the medium term could be dragged
by higher capex and lower business volume for its casino operations.
Neutral on gaming sector. Dividend yield for the NFO is still attractive at c.6%, hence
we maintain our Neutral rating on Berjaya Sports Toto. GENM’s earnings momentum
has been affected by casino duty hike while investors have become more risk adverse
towards the stock due to corporate governance issues relating to its purchase of loss-
Genting is maintained at Outperform due making operator, Empire Resorts. Nevertheless, the opening of the outdoor theme
to its compelling valuations of 12x park in 2H2020 is seen as a share price catalyst. Hence, we reiterate our Neutral call
forward PER. on GENM. Meanwhile, GENT is maintained at Outperform due to its compelling
valuations of 12x forward PER. Valuation for the parent company has also been
affected by the above-mentioned corporate governance issues but in the medium
term, catalysts for GENT include Genting Singapore’s possible venture into Japanese
gaming market, expansion of Resorts World New York and completion of integrated
resort in Las Vegas.
Gloves – Overcapacity Concern No More

Moving into 2020, we expect global Demand to remain resilient. 2019 was a relatively challenging year for glove makers,
rubber gloves demand to remain resilient as supplies outpaced the weaker than expected demand, leading to ASP pressure.
and continue growing at an average rate Moving into 2020, we expect global rubber gloves demand to remain resilient and
of 8-10% continue growing at an average rate of 8-10%. While we acknowledge that rubber
glove consumption in emerging countries like China and India is still low at
approximately 2 to 6 pieces per capita, as opposed to advanced nation’s (ie: US, UK,
Japan) consumption of up to 200 pieces per capita, we are of view that, in the absence
of policies being passed by government to enforce more stringent health regulations in
emerging markets, we do not expect glove consumption patterns in the emerging
countries to change significantly. Hence we believe that is no catalyst in sight that will
drive exponential growth in rubber gloves demand in the short to medium term.
Expansion plans still rational. Malaysia is the world’s largest producer of rubber
gloves, supplying approximately 63% of the global needs and we are confident that
Glove makers will pace their lines Malaysia will continue dominating this space for many years to come. Based on the
commissioning according to the market indicated expansion plans disclosed by the glove companies, installed capacity of the
demand, to maintain the demand and Big 4 (Top Glove, Hartalega, Kossan and Supermax) should reach 182bn pcs pa by
supply equilibrium, the end of CY2020F and we estimate the global supply of rubber gloves to reach
289bn pcs by end-CY20F. While our global supply estimates for CY20F will outpace
our global demand estimates, indicating slight overcapacity risk, we are not overly
concerned as we believe the glove makers will pace their lines commissioning
according to the market demand, to maintain the demand and supply equilibrium,
preventing another possible supply glut.
Table 20 : Estimated Installed Capacity and Global Supply in CY2020

bn pcs Top Glove Hartalega Kossan Supermax
By end-CY19 65.9 36.6 29.0 25.0
By end-CY20F 80.1 43.9 32.0 26.2
YoY Growth 22% 20% 10% 5%
Total, by end-CY20F 182.2

Estimated Global Supply in CY20F 289.2
Source: Companies, PublicInvest Research
* Supply based on planned capacities disclosed by companies
Table 21 : Estimated Global Demand in CY2020
bn pcs 2014 2015 2016 2017 2018 2019 2020

Estimated global demand 173.0 180.0 190.0 212.8 230.0 243.8 263.3
YoY Growth 6.5% 4.0% 5.6% 12.0% 8.1% 6.0% 8.0%
Source: Companies, PublicInvest Research
Implication of the possible minimum wage increase. As tabled in Budget 2020,

government has proposed to increase the minimum wage in major cities by RM100 to
Impact on glove makers’ earnings will be RM1,200 per month. Note that most of Top Glove and Kossan’s plants are located in
minimal from recent proposed minimum Klang, Selangor, while Hartalega’s factories are mainly located in Sepang and Batang
wage hike Berjuntai, Selangor. However, at this juncture, it is still unclear as to which locations
are categorized under major cities. Should this minimum wage proposal be
implemented, we reckon the impact onto the glove makers’ earnings will be minimal,
considering that the RM100 hike only accounts for less than 1% rise in total
manufacturing cost. In view of the better operating environment for glove makers, we
believe the extra cost can be passed on to buyers easily.
Maintain Neutral. In our view, the average global rubber gloves demand growth of 8-
Do not foresee rubber gloves 10% is still very much intact, with the demand mainly stemming from developed
consumption patterns in emerging markets, due to better hygiene awareness and increased healthcare expenditure.
markets to change significantly in the However, we do not foresee rubber gloves consumption patterns in emerging markets
short to medium term to change significantly in the short to medium term. In the absence of any rerating
catalyst in sight, we maintain our Neutral call on the rubber glove sector.
Consumer – Expecting Softer Environment

We remain cautiously optimistic on the consumer sector given its defensive nature due
to inelastic demand. That being said, we expect consumers to be more prudent in
Cautiously optimistic on the consumer spending by scaling down on discretionary items due to the uncertainties in the global
sector given its defensive nature due to economic environment. Furthermore, the high cost of living remains a major concern
inelastic demand. for consumers. The government remains committed to reducing the overall cost of
living by increasing household income through various measures however, some of
which include financial aids, reducing toll rates and providing job opportunities for the
youth and women as announced in Budget 2020. In conjunction with Visit Malaysia
Year 2020, several incentives have been announced to boost the tourism industry
which we believe will see retail players being one the major beneficiaries from the
greater number of tourists.
MIER Consumer Sentiment Index (CSI) reported a slight downtick to 84 points in

3Q19, coming down by 22% YoY from last year’s high base as consumers enjoyed a
Expecting MIER’s CSI to maintain below tax holiday which spurred consumption domestically before the introduction of SST in
the optimal threshold (100 points) on September 2018. Moving forward, we are expecting MIER’s CSI to maintain below the
softer consumer sentiment optimal threshold (100 points) on softer consumer sentiment as consumers are more
vigilant in spending.
Figure 35 : MIER Consumer Sentiment Index
MIER: Consumer Sentiment Index
140.0 132.9
120.0
107.5
100.198.0
96.8 96.8
100.0 91.0 93.0
83.0 82.6 85.6 84.0
78.5 80.7
76.6 77.1
80.0 72.671.770.2 72.9 73.6
69.8
63.8
60.0
40.0
20.0
0.0
Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19
Source: Bursa Malaysia, PublicInvest Research
We continue to favour 3A Resources and Johore Tin as beneficiaries of resilient

We continue to favour 3A Resources and consumer spending. In addition, we like Johore Tin for its growth potential supported
Johore Tin by its recent capacity expansion in the sweetened condensed milk facilities and
upcoming contribution from Able Dairies Mexico (ADM), which is slated for
commissioning by 1QFY20.
Power – MESI 2.0 In The Spotlight

Electricity sector development will be We are Neutral on the power sector, as we believe current capacity plant-ups in the
driven by the implementation of the pipeline will be sufficient to achieve the Energy Commission (EC)’s target of 30%
Malaysia Electricity Supply Industry reserve margin. Moving forward, the electricity sector development will be driven by
(MESI) 2.0 the implementation of the Malaysia Electricity Supply Industry (MESI) 2.0 reforms by
MyPower, of which will be focusing on the liberalisation across the power industry
value-chain to lower the electricity costs and lead to greater competition in the coming
years. Renewable energy (RE) supply will also be enhanced for long-term
sustainability. The Government has targeted to increase RE to 20% of the electricity
generation mix by 2025 (from 2% currently).
MESI 2.0. The Government has approved a 10-year master plan for power industry
reform, with the following key transformation initiatives; (1) to allow independent power
producers (IPPs) to source their own fuel (i.e. gas and coal), (2) move towards
capacity and energy markets compared to current power purchase agreements (PPAs)
regime, (3) to introduce third party access (TPA) framework and network charges to
transmission & distribution (T&D), (4) to liberalise the retail segment, and (5) increase
transparency between Single Buyer (SB) and Grid System Operator (GSO). We
expect earnings impact from the MESI 2.0 on TNB likely to be limited in the near term,
but this should lead to greater competition and hence, help to reduce electricity cost in
the future.
Implementations that we should expect in Among the implementations that we should expect in this coming year would be, (1)
this coming year determining the interim network charges for the TPA, (2) finalizing the regulatory
framework and guidelines for the retail segment and TPA, (3) a pilot project on TPA to
acquire a quota of 100MW of RE from direct RE suppliers, (4) publishing the
regulations on “own fuel procurement” by the IPPs, and (5) rolling out New Enhanced
Dispatch Agreement (NEDA+) for IPPs with excess capacity or expired PPAs to sell
energy by spot contracts to the Single Buyer (i.e. TNB).
Figure 36 : Timeline for MESI 2.0 Initiatives
Source: Energy Commission, PublicInvest Research
Riding on renewable energy. Currently, Malaysia’s electricity fuel generation mix is

The government plans to have RE to made up of about 55% coal, 42% gas, with the remaining percentage currently
account for 20% of the fuel mix by 2025 contributed by a relatively smaller share of RE sources, which needs to be increased
in the coming years. The government plans to have RE to account for 20% of the fuel
mix by 2025. With that, the Government has implemented the Large Scale Solar (LSS)
programs and Net Energy Metering (NEM) for solar power generation to expedite
power generation from photovoltaic plants and solar farms. To-date, the Government
has implemented two LSS project cycles with an installed capacity of 958MW.
Third round of large scale solar. The capacity for the new bidding of large scale
Capacity for the new bidding of large solar (LSS) project development has a target aggregate capacity of 500MW in
scale solar (LSS) project development Peninsular Malaysia. This is estimated to be worth about RM2bn (c.RM4m/MW),
has a target aggregate capacity of compared to c.RM7m/MW a few years back. Shortlisted bidders are expected to be
500MW in Peninsular Malaysia, announced in 1Q2020. To note, the lowest bidding for this LSS3 was earlier
estimated to be worth about RM2bn announced at 17.77 sen/kWh for 100MW capacity. Over the years, the cost of
renewable energy power plants has been declining due to the drop in the price of solar
panels, from improved efficiencies. These projects are expected to be commissioned
by 2021, with the tenure of the contracts usually 21 years for the solar PV power
plants. We believe this could benefit Cypark Resources given its technical expertise
and experience as the developer and operator of solar parks. Mega First Corporation
is also venturing into the renewable energy space after the successful operation of its
Don Sahong hydropower plant in Vietnam. Other beneficiaries may be TNB, YTL
Power and Ranhill.
New capacity plant-up and retirement. Seven committed generation projects of

about 5,556MW will be commissioned between 2020 and 2024. The new projects
consist of 4,682MW of gas and 874MW from hydro. The latest to be commissioned will
be a 1,440MW of gas-fired power plant by Edra Energy, scheduled to be commercially
st
operational on 1 July 2020. Meanwhile, about 4,700MW from various power plants is
also scheduled to retire between 2020 and 2024.
Table 22: New Generation Projects, 2020-2024

No. Projects Fuel Capacity (MW) Commercial Operation Date
1 SIPP Energy (Track 4A) Gas 1,440 1st Jul 2020
2 Edra Energy Gas 2,242 Jan 2021
3 Tekai Water 168 Jul 2021
U1: Apr 2022
4 Nenggiri Water 300 U2: Jul 2022
U3: Sep 2022
5 Tadmax Resources Gas 1,000 Jan 2023
6 Telom Water 132 Oct 2024
U1: Dec 2022
7 Lebir Water 274
U2: Mar 2023
Table 23 : Power Plant Retirement, 2020-2024
No. Plants Fuel Capacity (MW) Expiry PPA

1 Pahlawan Power Gas 322 Aug 2020
2 TNB Pasir Gudang Energy Gas 275 Aug 2022
Stesen-stesen Janakuasa
3 Water 649.1 Aug 2022
Sungai Perak
4 GB3 Gas 640 Dec 2022
5 Panglima Power Gas 720 Feb 2023
Teknologi Tenaga Perlis
6 Gas 650 Mar 2024
Consortium
7 Prai Power Gas 350 Jun 2024
8 SJ Gelugor Gas 310 Aug 2024
Airlines – Rising Costs, Competitive Pricing

Profitability for airlines players will remain Modest passenger traffic growth. Passenger traffic grew 6.3% YoY in 10MFY19,
challenging with current yield compared to 2.2% YoY in 10MFY18. Domestic and international traffic increased by
environment, overcapacity and volatility 10.2% and 2.7% respectively. The overall performance of passenger movements was
in foreign exchange contributed by the sustained demand for air travel supported by an increase in airlines
and frequencies as well as the addition of new routes. We expect traffic growth to ease
around 4% due to global economic growth weakness. Meanwhile, profitability for
airlines players will remain challenging with current yield environment, overcapacity
and volatility in foreign exchange. Hence, our Neutral call on the sector.
Figure 37 : Malaysian Quarterly Passenger Traffic, 2016-2019
30 16.0%
26.8
25.5 25.4 25.7
24.4 24.8 24.4 24.4 24.8 14.0%
25 23.1 23.8 23.6 23.8
21.2 21.0 13.3% 12.0%
11.3%
20 10.7%
9.8% 10.0%
15 8.4% 8.0%
5.7% 5.6%
6.0%
10
4.4% 4.0%
3.7% 3.7% 3.9%
5 2.6% 2.6%
2.0%
1.5%
0 0.2% 0.0%
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
Source: MAHB, PublicInvest Research
Decreasing yields. Competitive pressure results in decreasing yields despite higher

traffic volume as industry players attempt to defend their market shares. AirAsia
Airlines profitability was dragged mainly Malaysia grew its domestic market share to 60% in 3Q19. Spread for revenue per
due to change in accounting treatment of average seat km (RASK) against cost per ASK (CASK) narrowed, suggesting a
MFRS16 decrease in yields. For FY19, airlines profitability was dragged mainly due to change
in accounting treatment of MFRS16, which increased its maintenance cost,
depreciation as well as finance cost. Nevertheless, we expect this to stabilize in the
coming year.
Figure 38 : Quarterly Spread of CASK and RASK for AirAsia Group
sen RASK AA CASK AA

20.0
18.0
16.1 16.6
15.5
16.0 15.0 14.9
15.4 15.1 15.4 15.0
14.4
14.8 14.7 14.8 14.7
13.9 15.8
15.3
14.0 14.8
14.3 14.6
13.6 13.6 13.8
13.2 13.2
12.0
12.5 12.3 12.8 13.1
12.0
10.0
8.0
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
Source: Company, PublicInvest Research
Jet fuel price stabilizing, expect less savings however. Fuel expenses account for
40% of airlines’ operating costs. YTD Singapore jet kerosene prices have hovered
Minimal savings from its aircraft fuel around USD75 per barrel (-9% YoY). Nevertheless, Ringgit has strengthened slightly
expenses in the coming year. as it moved from RM4.03/USD in FY18 to RM4.14/USD in FY19. To-date, both AirAsia
Group (AAGB) and AirAsia X (AAX) have hedged 73% of its average jet fuel cost in
FY20 at USD75.74/bbl. Hence, we expect minimal savings from its aircraft fuel
expenses in the coming year.
Figure 39 : Singapore Jet Kerosene Prices (in USD/bbl)
USD/bbl JETKSPOT Index USDMYR Curncy USD/RM

100 93 4.50
4.43 87
90 4.40
77 80 78 77 76
80 4.29 4.30
4.22
67
70 62 70 4.19 4.20
58 4.14 4.13 4.13
60 4.08 4.10
4.05 4.04
50 4.00
40 3.90
3.86
30 3.80
20 3.70
10 3.60
0 3.50
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19
Auto – Lacking Catalysts

TIV supported by new model launches. We expect total industry volume (TIV) to
Total industry volume (TIV) to maintain its maintain its momentum next year with growth of 2%. This will be supported by new
momentum next year with growth of 2%. model launches such as the new Perodua SUV, Proton X50, Proton X70 CKD, Honda
City, Mazda CX-5 facelift, CX-8 and new CX-30. Expectation of slower economic
growth may curb spending on big-ticket items however. The revised National
Automotive Policy (NAP) is expected to be announced soon. Pending further clarity on
the NAP, we maintain our Neutral recommendation on the sector.
As of October 2019, TIV for vehicle sales in Malaysia declined slightly by 1% YoY to
497k units. This makes up 83% of full year Malaysian Automotive Association (MAA)’s
forecast of 600,000 units in 2019. Passenger car sales as at October 2019 increased
1.3% YoY to 453k units, though slightly off-set by lower commercial vehicles volume (-
20% YoY) to 43k units.
We continue to like Bermaz Auto as we believe it will benefit from higher exports
We continue to like Bermaz Auto through Mazda Malaysia (MMSB) for the locally-built Mazda CX-5 and CX-8 models to
Thailand and Indonesia. Meanwhile, we also expect better earnings from DRB-Hicom
due to improved operating environment from its automotive segment (i.e. lower losses
from Proton).
Figure 40 : Total Industry Volume MoM
Units 2018 2019 2018 2019 USDMYR

80,000 4.4
70,000 4.2
60,000
4.0
50,000
3.8
40,000
3.6
30,000
3.4
20,000
10,000 3.2
0 3.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: MAA, PublicInvest Research
NAP 2019. The National Automotive Policy (NAP) which was previously announced to
NAP 2019 is being prepared for launch be revealed in July 2019, was again delayed to end of this year. We understand that
and will be implemented in three phases NAP 2019 is being prepared for launch and will be implemented in three phases until
until 2030 2030. The key elements expected to be announced will be on energy efficient vehicles
(EEV) and adoption of Industrial Revolution 4.0. Meanwhile, the new national car
project has been confirmed to involve Daihatsu and DreamEdge. While this may
increase competition for the current national auto players i.e. Proton and Perodua, we
believe this might excite the auto industry in the long run.
Improved auto loans approval rate. We note that YoY auto loan approvals for
9M2019 have shown some improvements, with approval rate at an average of 63%,
compared to 58% in 9M2018. We believe more relaxed measures from the banks can
help to partially spur vehicle sales volume demand.
Figure 41 : QoQ Auto Loan Approval Granted By Banks
RMm %
16000 70%
65%
14000 63%63%
62% 63% 65%
12000
58% 59%
57% 60%
10000 56% 55%55%
55%55% 54% 54% 54%
55%
54%54%
8000 52% 53% 52% 55%
6000 48% 50%

4000
45%
2000
0 40%
03/2014
06/2014
09/2014
12/2014
03/2015
06/2015
09/2015
12/2015
03/2016
06/2016
09/2016
12/2016
03/2017
06/2017
09/2017
12/2017
03/2018
06/2018
09/2018
12/2018
03/2019
06/2019
09/2019
Source: CEIC, PublicInvest Research
Media – Digital Transformation A Long-Drawn Process

Traditional media adex remains lethargic. Latest Nielsen data showed that during
10MCY19, traditional adex fell by 12.2% YoY dragged by the absence of adex friendly
events and advertisers rationalizing on expenditures. Amongst all, print medium
suffered the most as both newspapers and magazines adex dropped by 17.1% and
18.1% YoY respectively given the declining circulation. Meanwhile, TV (-11.8% YoY),
Radio (-0.8% YoY), and In-store media (-1.9% YoY) adex deteriorated as well.
However, it is worth noting that Cinema adex increased by 19.2% YoY.
For 2020, we are forecasting a 10% Adex outlook. For 2020, we are forecasting a 10% decline in adex expenditure on the
decline in adex expenditure on the back back of the softer consumer sentiment and the lower newspaper circulation.
of the softer consumer sentiment and the Nevertheless, with 2020 being a major sporting year as the UEFA Euro Cup and
lower newspaper circulation Olympics will be held in July next year, it is expected to serve as short term catalyst to
boost adex. We re-iterate our Neutral view on the sector as we remain cautious on the
on-going structural change in the media industry.
Challenging environment going forward. More cost optimization efforts will be

More cost optimization efforts required required to reduce operational cost to act as a buffer for the lower adex. As reported in
various news sources recently, Media Prima will be undergoing an internal
restructuring which includes another round of manpower rationalization to embark on
the next phase of its business transformation plan. On-going monetisation efforts from
various digital assets remains challenging given its elevated cash burn rate before
turning the digital assets turn profitable. Furthermore, the growth in digital adex is
insufficient to cushion the decline from traditional media.
Budding e-sports industry. Given the rising popularity in the esports industry,
government has allocated RM20m for esports in Budget 2020 to develop the country’s
esports industry. As the industry slowly growing to be a global phenomenon, we opine
that Astro and Media Prima could potentially benefit from the growing esports industry
by securing broadcasting rights to attract viewership, hence developing a new revenue
stream to offset the decline in traditional media. Nevertheless, we believe that the
earnings impact generated from esports is likely to be minimal for the time being.
Figure 42 : Gross Adex (Jan – Oct, 2018 vs 2019)
2,500 2,292
2,020 Jan- Oct 2018 Jan - Oct 2019
2,000 1,894
1,571
1,500
1,000
500 350 347

73 71 149 178
47 39
0
Magazines
FTA TV
Radio
Newspapers
In store media
Cinema
Source: Nielsen Media Research, PublicInvest Research
Figure 43 : 4-Year Gross Adex (July 2015 to October 2019)
800 Total Adex FTA TV Adex Newspaper Adex

700
600
500
400
300
200
100
0
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Apr-16
Apr-17
Apr-18
Apr-19
Jan-16
Jan-17
Jan-18
Jan-19
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Source: Nielsen Media Research, PublicInvest Research
Table 24 : PublicInvest Research Stock Coverage (Prices as at 13 December, 2019)

EPS P/E
Mkt Cap. Current Target 2019 2020 2019 2020
Call RM'm Price Price Upside (sen) (sen) (x) (x)
Airlines
Air Asia Neutral 5,514.26 1.65 1.87 13.3% 0.7 5.8 235.7 28.4
Air Asia X Underperform 622.22 0.15 0.14 -6.7% 0.4 (3.4) 37.5
(4.4)
Auto
Sime Darby Outperform 15,643.33 2.30 2.70 17.4% 13.7 14.0 16.8 16.4
Bermaz Auto Outperform 2,393.74 2.06 2.51 21.8% 22.9 16.3 9.0 12.6
DRB-Hicom Neutral 4,427.11 2.29 2.80 22.3% 6.4 10.7 35.8 21.4
Building Materials
Chin Hin Group Outperform 407.05 0.74 0.94 27.0% 5.2 7.0 14.2 10.6
Construction
Gamuda Outperform 9,352.56 3.78 4.26 12.7% 28.6 23.5 13.2 16.1
IJM Corporation Outperform 7,875.91 2.17 2.42 11.5% 11.6 10.6 18.7 20.5
Hock Seng Lee Outperform 725.36 1.32 1.45 9.8% 10.8 13.1 12.2 10.1
WCT Holdings Neutral 1,212.57 0.86 0.91 5.8% 9.7 10.2 8.9 8.4
JAKS Resources Neutral 842.49 1.31 1.00 -23.7% 17.5 11.9 7.5 11.0
KKB Engineering Neutral 366.06 1.42 1.15 -19.0% 12.8 8.5 11.1 16.7
Consumer
3A Resources Outperform 364.08 0.74 0.95 28.4% 5.6 6.3 13.2 11.7
CCK Consolidated Outperform 341.70 0.545 0.79 45.0% 4.5 5.6 12.1 9.7
QL Resources Neutral 12,249.41 7.55 7.00 -7.3% 13.4 15.4 56.3 49.0
DKSH Holdings Neutral 416.22 2.64 2.60 -1.5% 20.5 28.9 12.9 9.1
Yee Lee Corporation Neutral 411.95 2.15 1.96 -8.8% 11.9 12.5 18.1 17.2
Financials
CIMB Group Holdings Outperform 52,095.57 5.25 5.80 10.5% 50.5 54.3 10.4 9.7
AMMB Holdings Trading Buy 11,422.91 3.79 4.50 18.7% 49.9 48.0 7.6 7.9
Alliance Bank Trading Buy 4,056.04 2.62 3.30 26.0% 34.7 27.3 7.6 9.6
Malayan Banking Neutral 96,001.23 8.54 9.10 6.6% 71.0 77.4 12.0 11.0
Gaming
Genting Outperform 22,410.35 5.82 8.70 49.5% 49.2 51.8 11.8 11.2
Genting Malaysia Neutral 18,091.68 3.20 3.35 4.7% 23.8 24.3 13.4 13.2
Berjaya Toto Neutral 3,461.79 2.57 2.30 -10.5% 17.4 19.8 14.8 13.0
Gloves
Hartalega Holdings Neutral 17,472.64 5.18 5.20 0.4% 13.5 13.1 38.4 39.5
Kossan Rubber Neutral 5,345.95 4.18 4.30 2.9% 17.2 20.3 24.3 20.6
Top Glove Corporation Underperform 11,237.58 4.39 4.15 -5.5% 14.5 18.3 30.3 24.0
Healthcare
IHH Healthcare Outperform 47,379.55 5.40 7.00 29.6% 10.4 11.9 51.9 45.4
KPJ Healthcare Outperform 3,977.32 0.93 1.06 14.0% 4.0 4.2 23.3 22.1
Apex Healthcare Underperform 1,085.40 2.30 1.75 -23.9% 11.3 11.4 20.4 20.2
Logistics
Perak Transit Outperform 334.12 0.235 0.43 83.0% 2.7 3.2 8.7 7.3
EA Technique Outperform 173.88 0.345 0.62 79.7% 5.0 6.2 6.9 5.6
CJ Century Logistics Underperform 144.40 0.37 0.32 -13.5%
(2.1) (0.7) (17.6) (52.9)
Manufacturing
SKP Resources Outperform 1,637.75 1.31 1.40 6.9% 7.7 8.4 17.0 15.6
Magni-Tech Industries Outperform 1,101.73 2.54 2.91 14.6% 22.9 28.5 11.1 8.9
Johore Tin Outperform 561.95 1.81 1.84 1.7% 14.7 16.8 12.3 10.8
Hextar Global Outperform 521.13 0.635 0.95 49.6% 0.3 5.9 211.7 10.8
VS Industry Trading Buy 2,476.27 1.34 1.49 11.2% 7.9 7.9 17.0 17.0
SCGM Trading Buy 304.52 1.59 1.82 14.5% 6.3 - 25.2
(2.6)
D&O Green Technologies Neutral 850.44 0.76 0.73 -3.9% 2.2 2.6 34.5 29.2
Media
Astro Malaysia Outperform 7,039.58 1.35 2.00 48.1% 8.9 12.8 15.2 10.5
Media Prima Neutral 316.12 0.285 0.28 -1.8% - -
(7.9) (4.5)
Star Media Group Neutral 361.56 0.49 0.44 -10.2% 1.0 0.9 49.0 54.4
Oil and Gas

Dialog Group Outperform 19,395.78 3.44 4.10 19.2% 9.5 11.0 36.2 31.3
Serba Dinamilk Outperform 6,291.05 2.04 2.56 25.5% 16.0 18.3 12.8 11.2
Sapura Energy Outperform 4,223.89 0.27 0.30 13.2% - -
(4.1) (2.8)
Hibiscus Petroleum Outperform 1,492.94 0.94 1.55 64.9% 14.5 12.3 6.5 7.6
Uzma Trading Buy 276.82 0.865 0.95 9.8% 8.1 8.8 10.7 9.8
Bumi Armada Neutral 2,761.97 0.47 0.53 12.8% 5.2 6.0 9.0 7.8
Wah Seong Corporation Neutral 862.92 1.12 1.16 3.6% 7.6 9.6 14.7 11.7
Daya Materials Neutral 10.21 0.005 - 0.0% 0.8 0.8 0.6 0.6
Power
Mega First Corporation Outperform 2,045.09 4.93 5.71 15.8% 20.7 48.9 23.8 10.1
Malakoff Corporation Trading Buy 4,202.79 0.86 1.02 18.6% 4.8 4.9 17.9 17.6
Tenaga Nasional Neutral 74,953.19 13.18 14.12 7.1% 96.5 97.2 13.7 13.6
Cypark Resources Neutral 649.74 1.39 1.48 6.5% 15.0 15.8 9.3 8.8
Property
Sime Darby Property Outperform 5,916.73 0.87 1.30 49.4% 8.2 6.3 10.6 13.8
SP Setia Outperform 5,497.78 1.36 2.00 47.1% 9.7 10.5 14.0 13.0
UEM Sunrise Outperform 3,448.45 0.76 1.10 44.7% 5.2 3.8 14.6 20.0
IGB Berhad Outperform 2,486.25 3.65 4.70 28.8% 29.3 30.3 12.5 12.0
LBS Bina Outperform 773.66 0.50 0.86 72.0% 4.6 5.5 10.9 9.1
I-Berhad Outperform 263.15 0.23 0.47 104.3% 1.9 1.8 12.1 12.8
Eastern & Oriental Neutral 902.51 0.63 0.75 19.0% 4.3 1.0 14.7 63.0
Ayer Holdings Neutral 327.86 4.38 5.47 24.9% 14.3 13.6 30.6 32.2
Yong Tai Neutral 149.03 0.18 0.23 27.8% - - -
(10.1)
Plantations
KL Kepong Outperform 26,304.65 24.70 27.42 11.0% 57.4 75.6 43.0 32.7
Genting Plantations Outperform 9,330.86 10.40 13.42 29.0% 19.0 35.4 54.7 29.4
TSH Resources Outperform 1,849.43 1.34 1.55 15.7% 2.9 6.0 46.2 22.3
Sarawak Plantations Outperform 505.05 1.81 2.80 54.7% 5.9 14.0 30.7 12.9
Sime Darby Plant. Neutral 36,694.79 5.33 5.66 6.2% 8.6 15.7 62.0 33.9
IOI Corporation Neutral 28,783.67 4.58 4.96 8.3% 11.0 11.8 41.6 38.8
REITs
IGB REIT Neutral 6,813.75 1.92 1.98 3.1% 8.9 9.2 21.6 20.9
Sunway REIT Neutral 5,418.94 1.84 1.93 4.9% 9.6 10.2 19.2 18.0
Axis REIT Neutral 2,526.04 1.76 1.77 0.6% 9.4 9.5 18.7 18.5
Telecommunications
Digi Neutral 35,065.25 4.51 4.72 4.7% 18.6 18.2 24.2 24.8
Telekom Malaysia Neutral 14,422.38 3.83 4.00 4.4% 25.1 24.1 15.3 15.9
Maxis Underperform 39,962.75 5.11 4.80 -6.1% 20.3 20.7 25.2 24.7
Axiata Group Trading Sell 38,578.64 4.21 4.00 -5.0% 10.8 11.3 39.0 37.3
Timber
Ta Ann Holdings Outperform 1,409.48 3.20 4.83 50.9% 13.2 32.8 24.2 9.8
RATING CLASSIFICATION
STOCKS
OUTPERFORM The stock return is expected to exceed a relevant benchmark’s total of 10% or higher over the next 12months.
NEUTRAL The stock return is expected to be within +/- 10% of a relevant benchmark’s return over the next 12 months.
UNDERPERFORM The stock return is expected to be below a relevant benchmark’s return by -10% over the next 12 months.
TRADING BUY The stock return is expected to exceed a relevant benchmark’s return by 5% or higher over the next 3 months but
the underlying fundamentals are not strong enough to warrant an Outperform call.
TRADING SELL The stock return is expected to be below a relevant benchmark’s return by -5% or more over the next 3 months.
NOT RATED The stock is not within regular research coverage.
SECTOR
OVERWEIGHT The sector is expected to outperform a relevant benchmark over the next 12 months.
NEUTRAL The sector is expected to perform in line with a relevant benchmark over the next 12 months.
UNDERWEIGHT The sector is expected to underperform a relevant benchmark over the next 12 months.
DISCLAIMER
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This document is not and should not be construed or considered as an offer, recommendation, invitation or a solicitation of an offer to purchase or subscribe or sell any
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PUBLIC INVESTMENT BANK

PublicInvest Research Market Strategy Monday, December 16, 2019

Malaysia’s investment proposition for 2020 appears to be better than what it is in

1H 2020 Global Economic Outlook

Figure 2a : Advanced Economies’ GDP Figure 2b: Emerging Market Economies’

2018 2019F 2020F 2018 2019F 2020F

Source: International Monetary Fund, PublicInvest Research

YoY growth (%)

Advanced Economies (AE) 2.3 1.7 1.7

World Trade Volume 3.6 1.1 3.2

CPI: AE 2.0 1.5 1.8

AEs EMDE AEs EMDE

China: Rebalancing and Reforming. China, despite facing trade-related headwinds,

Borrowing Rate (LHS) RRR (RHS)

Recovery in commodities, particularly crude oil. Prices should rebound in 2020,

Brent (LHS) MYRUSD (RHS)

Source: Bloomberg, PublicInvest Research

Recovery in manufacturing to benefit global economy. China’s entrenched

Figure 7 : Global Manufacturing PMI (Sept 2018 – Sept 2019)

Global US Eurozone China Japan

Socio-political tensions could continue to stoke uncertainty however.

Protectionist approach could continue to raise risk aversion. President Trump’s

1H 2020 Malaysian Economic Outlook

Our take on the country’s main economic indicators:

Growth Prospects. Malaysia’s growth momentum was favorable in 2019 considering

8.0% 7.4% 7.0%

Source: Department of Statistics Malaysia, PublicInvest Research

2018 2019e 2020f

Services 6.8 6.2 6.4

Monetary policy to remain steady in 1H20. Interventions in the Overnight Policy

Our baseline assumption of a breakthrough in US-China trade negotiations suggests

CPI (LHS) Core CPI (RHS)

Source: Department of Statistics Malaysia, PublicInvest Research

Ringgit volatility to subside. Movement will continue to be influenced by external

Export Growth (LHS) RM per USD (RHS)

1H 2020 Malaysian Market Outlook

KEEPING THE OPTIMISM

-10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Table 4 : Foreign Investor Net Flows

While there is great urgency to overcome current self-inflicted “distractions”

BUDGETED EXPENDITURE vs ACTUAL EXPENDITURE

RMbn FDI position (lhs) Net FDI (rhs) RMbn

800.0 47.0 50.0

700.0 39.4 40.4 45.0

Source Malaysian Investment Development Authority (MIDA), PublicInvest Research

Source: Ministry of Economic Affairs Malaysia, PublicInvest Research

Table 6 : Proposed Distribution of Economic Regions

Economic Region Key Economic Growth Activity (KEGA)

Sector Measures Impact

PRICING THE OPTIMISM

Table 9 : Earnings Trends (2Q CY15 to 3Q CY19)

Above In-Line Below Total Trend

The above is somewhat reflected in corresponding market movements, as the

Revision Ratio KLCI (Month+1)

Source: Bloomberg, Companies, PublicInvest Research

• 1Q CY16 to 3Q CY16 saw fairly benign momentum which corresponded with

• 2Q CY17 to 4Q CY17 saw upticks meanwhile, which also corresponded to

• 2Q CY18 to 4Q CY18 (calendar period: September 2018 to March 2019)