MALAYSIA – 3.5 STARS (ATTRACTIVE)

MALAYSIA – 3.5 STARS (ATTRACTIVE)

 Exports in Jun 09 fell 22.6% from a year ago, but gained 2.9% m-o-m
 IPI in June declined by 9.6% y-o-y and gained 0.2% m-o-m
 Manufacturing sales was 25.5% lower on yearly comparison, 6.7% higher on m-o-m comparison
 Deflationary trend persisted for the second straight month in July, CPI fell 2.4% from a year ago
 2Q GDP growth contracted by 3.9% y-o-y.
 Positive quarterly GDP growth of 4.8% q-o-q signifies Malaysia is officially out of technical recession.
 3.5 star ratings maintained, with consensus earnings for 2009 and 2010 being revised upwards to -2.7% and 15.2% respectively,which translate to a forward PE of 16.7X in 2009 and 14.5X in 2010

MARKET OUTLOOK

OUR RECOMMENDED FUND:

ABERDEEN MALAYSIAN EQUITY FUND (CPFIS REGISTERED)

Malaysia’s exports fell at the slowest pace during the month of June. Exports were 22.6% lower year-on-year after a 29.7% decline in May. On a monthly comparison, exports were 2.9% higher than the previous month. Meanwhile, imports displayed a similar trend, with a 20.8% year-on-year decline, following the previous month’s 27.8% decline and a month-on-month increase of 9.4%. Industrial production index (IPI) in June, supported by exports, also posted a smaller fall of 9.6% year-on-year, while it gained 0.2% on a monthly comparison. Manufacturing sales growth in June was 25.5% lower as compared to a year ago and was 6.7% higher as compared to the previous month. The reversal of the monthly data are signs of a recovery in demand as global recession threat eases.
Consumer prices in July fell by 2.4% year-on-year as commodity costs eased from previous year’s records. We believe that current deflationary trend would allow the central bank to hold its interest rates low throughout the year. Malaysia recorded a 3.9% contraction in its second quarter of 2009. This brings the GDP growth for the first half of 2009 to -5.1% year-onyear. The smaller than expected contraction was supported by higher public spending and a mild positive growth in private consumption of 0.5%.
On a quarterly comparison, Malaysia is officially out of technical recession. On a quarter-on-quarter basis, Malaysia’s GDP grew by 4.8% from a revised 1Q of -7.8% quarter-on-quarter growth. To recap, Malaysia recorded two-consecutive negative growth rates of -3.4% and -7.8% in fourth quarter of 2008 and first quarter of 2009 respectively. Judging from the economic data, Malaysia is poising for a gradual recovery.

We believe that the current consensus earnings were being too pessimistic, hence we have revised the market earnings growth for 2009 and 2010 upwards to -2.7% and 15.2% respectively, which translate to a forward PE of 16.8X in 2009 and 14.6X in 2010 (as at 27 Aug 2009). We are maintaining 3.5 star ratings on Malaysia market