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As the world grapples with the coronavirus outbreak, Malaysia is also not spared from it. The second wave of coronavirus cases in Malaysia crept up quietly amidst the political turmoil.
On 16 March 2020, the Malaysian government’s implementation of a nationwide movement control order (MCO) from the 18 to 31 March 2020 caught everyone off guard. The order triggered a balik kampung (return home) exodus and caused long queues along the Johor-Singapore Causeway before the MCO took effect.
During this period, public gatherings including religious, sports, social, recreational, and cultural activities are not allowed. All business premises have to be closed except for supermarkets, some wet markets, pharmacies, sundry shops and convenient stores that sell necessities. The order restricts Malaysians from leaving the country and foreigners from entering. Everyone in Malaysia is encouraged to stay home whenever possible. However, Malaysians are still allowed to leave home as long as we travel alone for not more than 10 km to buy necessities and practise social distancing.
As stocks worldwide and oil prices crashed, the FTSE Bursa Malaysia KLCI dropped to a ten-year low at 1,219.72 points at one point in March. This means a 35.6% drop from its peak at 1,895.18 points in April 2018. To boost economic sentiments, the (again) newly minted Malaysian government unveiled a RM250 billion stimulus package which includes a one-off payments targeted at the middle and lower income households.
The MCO was extended for another 14 days until the 14 April 2020 and stricter measures were implemented to further control public movement amidst the escalating number of coronavirus cases. So what does this mean for businesses?
Here are five things I noticed during the Malaysia lockdown:
1. Travel including aviation and tourism-related businesses have been hit hard in the short term. When there is no inflow of foreign tourists and locals stay home, hotels are only allowed to operate on a minimal basis e.g. providing necessities such as food and beverages. As airlines are grounded amidst reduced travel demand, AirAsia employees took a pay cut, ranging from 15% of their salaries among senior employees to 100% among the management. However, this may be just temporary as life in China is slowy returning to normal and domestic tourism there begins to recover. As people hold back their travel needs and wants, I believe travel demand will surge dramatically after this crisis ends.
2. Retail stores selling non-essential items will be closed for at least 28 days. As garments are considered non-essential items, fashion companies like Padini have shut their physical stores and halted their online delivery services. Retail sales will likely jump the moment the MCO is relaxed.
3. REITs are essentially landlords who receive steady streams of income from their tenants. Their tenancy contracts are usually one year long as stated in their lease expiry profiles. In light of the tough existing business environment, REITs will usually offer rental rebates to tenants as part of their social responsibility. For instance, Pavilion REIT offered its tenants who provide non-essential services 14 days-worth of free rental to pull through this difficult time. It is also interesting to see how the future of office REITs will be like as most Malaysians get their first taste of working from home during the crisis. The demand for fixed office space leases in the future is not certain.
4. Demand for consumer products is still strong. Fear has driven panic buying and long queues for grocery shopping across the country prior to the lockdown. Nevertheless, the situation has eased as people are relieved to see grocery products being replenished regularly. Companies like Dutch Lady Malaysia that sell necessities could still maintain their sales. To my surprise, Heineken Malaysia and Carlsberg Brewery Malaysia have closed their breweries and their Malaysian operations in line with the MCO. At the moment, beer and alcohol can still be purchased from supermarkets and convenient stores like Tesco, 7-11, 99 Speedmart, and online.
5. More consumers have resorted to food and grocery delivery. Restaurant dine-in is prohibited under the MCO while take-aways and food deliveries (mostly contactless now) are allowed. As a result, delivery orders spiked by more than 30%. At the same time, more restaurant and grocery store owners are engaged with delivery platforms like GrabFood, FoodPanda, and HappyFresh. Last-mile delivery and logistics services will continue to grow and become more competitive in the Malaysia. Also, as we spend more time on our phones, a number of global tech companies remain relatively unaffected by the coronavirus.
There will be short-term pain in the wake of the coronavirus pandemic. The number of job losses in Malaysia could reach 2.4 million people in the country. Consumers will inevitably cut their spending in the near term, affecting the financials of companies temporarily. Just like the SARS epidemic, the coronavirus pandemic will come to an end someday.
This stock market crash presents us opportunities to invest in great companies. Cash is king. Companies with good cash flow management and resilient business models are better armed to withstand the crisis. Just to borrow a quote from Warren Buffett: ‘Only when the tide goes out do you discover who is swimming naked’.
Happy shopping and investing!