Exploring Recovery Stocks - Bursa Malaysia

There were a lot of talks recently that Major funds are moving their money from Technology sectors into Recovery stocks. We know that a lot of Technology stocks have enjoyed high valuation and I suppose this rotation play is inevitable looking at the development of demand recovery to the rest of the sectors who experienced terrible set backs due to COVID19. Sectorial play or rotation play is common in stocks and typically stock markets look at 6 months down the road or at least trying to predict what will happen 6 months later.

So, just to be sure, what are really Recovery Stocks or Recovery Sectors? By definition, these are the companies which experienced significantly lower sales, lower profit (or even losses) and after the event which triggered the downturn eases it'll bounce back. Let us look into these sectors as below:

1. Retail Sector

Retailers like Padini, Bonia, AEON all suffered significantly lower sales during this pandemic as people stayed at home more, wear less formal wear (even their shoes get worn out less). Many retail shops are relatively empty and relied on online shopping. However, we understand that sales are typically down and some companies in the retail sectors experience losses due to lower revenue but no reduction in operating costs (in fact some went up as they have to fulfill the physical distancing and sanitizing requirements).

2. REITS

Malls and office spaces were always one of the most stable sector during any economic downturn but this one driven by COVID19 pandemic is very different. Due to restrictions, malls suffer a great deal and now most of them barely has 50% of their regular foot traffic. The likes of IGBREIT, CMMT, Pavillion REIT, KLCCP, Sunway REITs are your choice for investment.

3. Oil and Gas

Oil and Gas sector is a very unfortunate sector which experienced a recent crisis in 2015 and now in 2020 again. There are significant drop in usage of petroleum products as people travel a lot lesser (i.e. almost 90% of all flights are cancelled in the world and people are forced to stay at home instead of driving to work or for holidays). Companies like Hengyuan, PetronMalaysia, Muhibbah, Waseong, SerbaDinamik, Bumi Armada, Hibiscus are companies to watch.

4. Property Development

Property purchase is a big ticket item and during the initial days of COVID19, developers are unable to sell their properties. But thanks to the new home ownership programme, discounts and tax exemption given, the sub-RM500k homes are selling relatively well. Developers like Mah Sing, SP Setia, Sime Property,  LBS Bina, Naim etc are reporting brisk sales and certainly something for investors to look out for again. Although prices have came down a little but as long as developers continue to move sales, they are still able to make profit (or even more profit).

5. Hospitals and Healthcare

A lot of hospitals and healthcare facilities are now focused on treating COVID19. Routine checkups are being deferred by patients and we can see that hospitals having a drop in income due to lower patients. Companies like KPJ, TMCLife, IHH are for you to consider if their share prices have corrected down and have potential to recover once their patients intake is back to normal.

6. Travel and tourism related industry

This is the worst hit industry among all - the airlines, hotels, theme parks etc. Almost all of them have 80-90% reduction in demand. We have limited hotel chains listed in Malaysia but we do have AirAsia, AirAsia X, Malaysia Airports, Genting Berhad, Genting Malaysia, Avillion, Shangri-la etc who are badly affected by this COVID19 pandemic. 

7. Restaurants, Leisure related industry

We have a lot of F&B listed companies who sells their products off the shelves in supermarkets (i.e. Nestle, Yee Lee). However, OWG who operates chain of restaurants at tourist spots and even tourist attractions are quite badly impacted due to lower tourist footfall. 

8. Industrials and Constructions

Industrials and Construction sectors are affected as well as demand for cement, steel etc dropped during MCOs. Industrial and construction names like MCement, CMSB, Gadang, Ahmad Zaki Resource Berhad, Ekovest, WCT, YTL, YTLPower, Success Transformer are names to look out for to see if they will benefit from government's stimulus projects. Normally the government will spend on some large scale infrastructure projects to spur local economies during an economic crisis to create multiplier effect of spending.

9. Automotive 
List automotive companies like UMW, MBMR, DRBHicom (conglomerate but parent to Proton), Bermaz Auto have all benefited from the 0% SST this year. For Perodua , we hear that monthly car sales were at their multi-year highs it is operating at 99% of its capacity. 

10. Banks

All banks are impacted by loan impairments as economies softens and many customers lost their main source of income. Some of them who borrows more to middle-to-lower income groups are affected more. Banks like CIMB, Maybank, Public Bank, Ambank, Bank Islam, Hong Leong Banks etc are worth your consideration as well. You may want to select banks has been beaten down the worst and have opportunity to recover the most. However, be careful about huge amount of impairments and write-downs as companies and individuals are unable to repay their loans due to this tough economic situation.