Macro Analysis /
Bangladesh

Bangladesh – Economic activities resume; we prefer Telco, Consumer, Pharma & MFS

  • The countrywide holiday ends on 31 May; The stock market resumes with the earlier-imposed price floor.

  • Economic activities likely to increase from July; Substantial currency depreciation less likely.

  • We recommend BUY for BRAC, GRAM, SQUARE, BXPHAR, OLYMPI and MBL amid corona pandemic.

Bangladesh – Economic activities resume; we prefer Telco, Consumer, Pharma & MFS
Contributors
Shopnil Paul
Tanay Kumar Roy
IDLC Securities
31 May 2020
Published byIDLC Securities

No more general holiday from 31 May

On May 31, 2020, Bangladesh will mark the end of 66-day long ‘General Holiday’ (38 days lockdowns, 20 weekends, and 8 public holidays) as the economic activities resume on a ‘limited scale’. For the next 15 days, all private and public offices and factories are allowed to remain open, complying to the health rules, from 6am to 4pm. However, people are requested to stay home from 8pm to 6am without emergency needs. The stock market was also closed for the same period (longest since 1975). It will also open on May 31, 2020. As of May 30, 2020, Bangladesh has identified 44,608 confirmed cases (14.8% of tests) of COVID-19. The total death count is 610 (1.4% of confirmed cases) against 9,375 recoveries. 

We expect full business activities from July 

Readymade Garments (RMGs) opened on April 26 and shopping malls and small shops were allowed to open from May 10. Everything was allowed on a limited scale (operational time 6am to 4pm). However, many large shopping malls and markets decided to keep closed during this time. Public transports were also not allowed in this whole period. Hence, we experienced limited business activities during these general holidays. Now, everything is expected to reopen from May 31 including public transports. It is to be noted, everything can remain open till 4pm. As mentioned before, all people have to stay home from 8pm to 6am till 15 June. Considering the current trend, we expect full economic activities from July. Besides, the Bangladesh government has already announced a BDT1.01tn (USD11.8bn) package, equivalent to 3.3% of GDP, to stimulate the economy reeling from the immediate impact of the pandemic. You can find the full details in the report.

We don’t expect substantial BDT depreciation soon 

Bangladesh Bank (BB) currently has USD 33.1bn forex reserve which is equivalent to 6.5months of import payment. Our external debt is only USD 37.8bn (12% of GDP) with no immediate repayment covenant. Most of the loans are highly long-term in nature with soft conditions. On top of that, our import amount reduced significantly amid this corona pandemic. Hence, there is no USD payment pressure at this moment. The government seems to have the flexibility to sell another 10-15% reserve in the money market to keep the stability of the exchange rate. It is to be noted, BB sold USD 700mn in FY20 (till April) against USD 2.34bn of FY19. However, we may see a slowdown in export and remittance in the coming months. Our export fell by 13% YoY in FY20 (10 months) but in the first 4 months of 2020 it fell by 24%. Import fell by 4% in FY20 (10 months) and 7% in the first 4 months of 2020. On the other hand, Remittance is up by 12% in FY20 (10 months) but in the first 4 months of 2020 it fell by 6%. Overall, we don’t see an immediate threat to the currency. 

DSE will resume trading after 66days break but with the earlier floor price 

New BSEC chair has said that he will observe how the market reacts and take feedbacks from different stakeholders before reviewing the price floor withdrawal. Some stakeholders think that the withdrawal of the price floor, followed by a downtrend in the market, would trigger sales from margin loan accounts and would further worsen the situation, thus advocating for the price floor. However, the price floor will lead to a low level of market turnover and shrink the profit of brokerage businesses. Therefore, the regulators have to address this issue, eventually. So, we do not expect the price floor to continue for long.

We like BRAC, GRAM, SQUARE, BXPHAR, OLYMPI and MBL 

This long 66-days will impact all the businesses. No business is immune from this pandemic driven economic slowdown. However, telecom, pharmaceuticals and FMCGs are less impacted. We prefer Grameenphone due to regulatory easing and high dividend expectation; Square and Beximco for historical cheap valuation; Olympic and Marico for expected quick business recovery, low level of commodity prices, continuous efforts with new products (details in our consumer coverage); BRAC for its 41.5% (economic interest) of the country’s largest MFS provider bKash (details in our bank sector report).