The global sell-off in equities has definitely raised the risk of an early recession. While it’s still early days yet to say that a bear market is taking hold, OSK feel that it is prudent to highlight a list of alternative defensive stocks for the longer run that would benefit in the event a recession does set in early.
These stocks will benefit from a drop in incomes and commodity prices and are generally more inward looking as OSK believe domestic incomes should be more resilient.
The tables below are OSK’s alternative stocks which contains, target price, rating & the reason for the selection.
| Stock | Business | Price (RM) | Target price (RM) | Market Cap (RM million) | Rating |
|---|---|---|---|---|---|
| AirAsia | Asia‟s largest Low Cost Carrier | 4.10 | 4.34 | 11,383.7 | Buy |
| KPJ Healthcare | Malaysia‟s largest private hospital chain | 4.69 | 5.37 | 2,671.6 | Buy |
| Media Chinese | Malaysia‟s largest Chinese newspaper publisher | 1.21 | 1.70 | 2,040.6 | Buy |
| QL Resources | Malaysia‟s second largest producer of chicken eggs and South East Asia‟s largest producer of fish paste (surimi) | 3.18 | 3.81 | 2,645.8 | Buy |
| SEGi | Malaysia‟s largest private education provider | 1.90 | 2.23 | 1,039.6 | Buy |
| Supermax | The world‟s second largest rubber glove producer | 3.69 | 5.90 | 1,254.9 | Buy |
| Stocks | Defensiveness |
|---|---|
| AirAsia | In the event of a recession, oil prices will likely retrace and oil is 77% of operating cost (for FY11f). For every 1USD retracement in jet fuel price, earnings will increase by 2% (RM20m) |
| While demand for overall air travel may drop, passengers are more likely to downtrade to Low Cost Carriers given their lower fares | |
| Given its lowest cost advantage, AirAsia may use this opportunity to increase market share in all its operating markets | |
| KPJ Healthcare | Demand for private healthcare is relatively recession-proof whereby a slowdown in demand typically lags by 6 months after a recession starts |
| Community based hospitals and strong brand loyalty with insignificant exposure to medical tourism | |
| The overcrowded and long queues in public hospitals will continue to sustain demand for private healthcare | |
| With the lower cost advantage in Malaysia, it will attract back Malaysians who used to seek medical services overseas as well as attract cost-sensitive medical tourists | |
| Media Chinese | Should oil price retrace amid fears over global recession, we expect to see similar movements in newsprint prices (which made up >50% of the group‟s COGS) as energy costs constitute some 25% of newsprint production costs |
| Demand would likely remain sturdy given the relatively inelastic purchases of newspaper; might even go up given the more “exciting” news on the occurrence of natural disasters and with potential national snap polls ahead | |
| Fears over global recession would have minimal impact on local advertising expenditure, as domestic consumption remains robust on decent economic numbers | |
| QL Resources | Due to the cheap selling prices of its products and the fact that poultry products and surimi are deemed necessities, demand is unlikely to be affected |
| Demand could in fact increase due to downtrading | |
| A recession will likely lead to lower cost of its feed material thus sustaining its margins | |
| SEGi | Demand for tertiary education is unlikely to be affected with various govt loans, scholarships and even payment on installment offered |
| Even more so for SEGi given their students are typically from mid to high income families | |
| The possible strengthening of the US Dollar and reduced personal incomes will mean that local courses in Malaysia become even more attractive | |
| Supermax | Demand is mainly driven by global healthcare awareness rather than global economic conditions |
| With the potential slowdown in global economy, we expect all commodity prices (including latex price) to retreat and this would be good for the company | |
| The rubber glove sector has already undergone a sell-down when latex price was trading at an all-time high. Selling should be minimal now. |
Source : OSK Research