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12MP: A Prosperous, Inclusive, Sustainable Malaysia

While 12MP incorporates pragmatic aspirations that target to deliver shared prosperity and environmental sustainability via adopting game-changing initiatives and policy enablers, we expect a neutral reaction from the short-term oriented equity market. Nevertheless, we continue to expect Malaysian equities to stage a meaningful uptrend through 4Q21, in tandem with the nation achieving its COVID-19 vaccination threshold which would allow a fuller reopening of the economy.

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WHAT’S NEW

• Shared Prosperity Vision 2030. PM Ismail Sabri tabled the 12th Malaysia Plan, 2021-25 (12MP) in parliament yesterday. Themed ‘A Prosperous, Inclusive, Sustainable Malaysia,’ 12MP is Malaysia’s new development narrative and is structured to achieve sustainable economic growth, with a focus on equitable wealth distribution, the wellbeing of the ‘rakyat’ (people) and environmental sustainability. The plan targets GDP growth of 4.5-5.5% p.a. from 2021-25, driven by private consumption and external trade, and GNI per capita to hit RM57,882 by 2025 (see RHS). Strategies identified to boost economic fundamentals include: a) developing future talent, b) accelerating technology adoption and innovation, c) enhancing connectivity and transport infrastructure, and d) strengthening the public service.

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• 12MP encompasses three themes (resetting the economy, strengthening security, wellbeing and inclusivity, and advancing sustainability), 14 game changers and four policy enablers (see RHS).

• While there is a substantially higher development allocation of RM400b (11MP: RM260b), a higher allocation (>50%) would be channelled to the six less developed states (vs 46% in 11MP’s RM260b allocation). Meanwhile, 12MP reiterated the government’s commitment to selected mega projects (ECRL, Johor Bahru-Singapore Rapid Transit System, Pan Borneo Highway).

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• Green initiative. 12MP also focuses on advancing green growth as well as enhancing energy sustainability and transforming the water sector. This will address the issues of climate change, unsustainable consumption and production practices, loss of biodiversity, lack of coherence in the implementation of policies and inefficient water resource management.

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ACTION

• We remain positive on economic reopening and maintain our end-21 FBMKLCI target of 1,635, which implies 16.2x 2021F PE (mean PE), and is conservatively well below our bottom-up target of 1,732. There is continuity to the FBMKLCI’s upside, and the end-22 target could hypothetically reach 1,775 assuming historical year-end PE valuations (+0.5SD to mean).

• Economic reopening, commodity super-cycle and technology plays should gain more traction through 4Q21. Our top picks are CIMB, Genting Malaysia, Inari Amertron, MYEG, Press Metal, Sunway Berhad, Telekom Malaysia and Pentamaster. Major beneficiaries of reopening include the tourism-dependent aviation and gaming (eg GENM) sectors and banks, while the beneficiaries of a commodity super-cycle include BUY-rated Press Metal, OM Holdings and Malaysia Smelting Corp.