While we are optimistic on a vaccine driven recovery in 2021, the path to normalcy will likely be gradual; we estimate that Malaysia will achieve an immunisation rate of 20% by end-2021. Our 2021 GDP forecast of 6.0% is a tad lower than MoF’s 6.5-7.5%. While the market may have an optimism bias next year, inevitable hiccups will bring volatility along this recovery path. We project KLCI’s core earnings to rebound +20.8% in 2021 (2020: -17.4%). Our end-2021 KLCI target of 1,780 is based on 19.3x PE (+1SD, reflecting a “recovery premium”) tagged to 2021 EPS.
Our OVERWEIGHT sector ratings are on Auto (TIV rebound; our preference are for national marques exposure), Banking (proxy for macro based recovery) and Gloves (share price has come off while a still rising Covid count will very much be around in 2021) and Tech (trade war beneficiary and vaccine recovery play). Aviation remains an UNDERWEIGHT as we reckon international boarder openings will be the last leg of the recovery phase. We have upgraded Consumer to NEUTRAL from Underweight inline with the recovery theme, but downgraded Healthcare from Overweight to NEUTRAL (strong share price run for Pharmaniaga while results for the 2 hospitals players were a let-down). Amongst the NEUTRAL rated sectors, we have a slight positive bias on Construction, O&G and Plantations.
While we are optimistic on a gradual vaccine driven recovery playing out in 2021, Covid-19 related headwinds will still be in the picture. As such, we take a more balanced approach in our top picks with a combination of plays involving recovery (Tenaga, AMMB, DRB, MBM and FocusP), volatility (Bursa), defensives (TM, MQREIT), value (IJM, Sunway, Armada) and sold down pandemic beneficiaries (Top Glove). |
178 
