Malaysia Budget 2018 - Potential Beneficiaries

Malaysia Budget 2018 - Potential Beneficiaries
■ We expect Budget 2018, due to be tabled on 27 Oct, to be mildly positive for market.
■ The consumer sector is a likely beneficiary of social assistance from government.
■ Property developers could gain via push for affordable housing.
■ Technology companies could benefit from government plans to grow digital economy.
■ Sin taxes unlikely to be raised and contractors to benefit from infrastructure projects.
Preview of Budget 2018
We expect Budget 2018, due to be tabled on 27 Oct 2017, to be the last budget before the 14 th General Election (GE14) as the latter has to be called by Aug 2018. We are of the view that Budget 2018 will address key concerns of the population, without negating the government’s commitment to fiscal prudence.

Mildly positive for consumer sector
We expect Budget 2018 to lift social assistance and cash transfers to the civil service, lower income households, households employed in the agriculture sector, Felda settlers and army veterans, among others. The government may also look to ease the financial burdens of families and dependents via personal income tax reliefs. This may benefit the consumer companies under our coverage like Nestle, F&N, Kawan Food, CCK, QL Resources, Bison, Berjaya Food and 7-Eleven.

Property developers could benefit from push for affordable housing
We expect the government to address the lack of affordable housing supply by expediting the 1Malaysia People’s Housing Programme (PR1MA). Other potential measures include improving access to end-financing for affordable housing via the Rent-to-Own scheme to affordable non-PRIMA property developments, extension of full waiver of stamp duty for first time home buyers and setting up an agency to coordinate the provision of affordable housing. This may benefit Mah Sing, SP Setia, LBS Bina, Sime Darby and Lafarge.

Education and healthcare may benefit from higher allocations
Government allocations for education and healthcare may be boosted given its far- reaching benefits for broad population. We also expect education assistance (student debit card, schooling assistance programme) to be extended. This could benefit the pharmaceutical companies under our coverage like Pharmaniaga, YSP and Hovid. A higher education spend could benefit Sasbadi.

malaysia budget 2018

malaysia budget 2018
Beneficiaries of potential incentives to grow digital economy
We expect Budget 2018 to provide tax incentives, investment grants and capital allowances to assist in the development of an ecosystem for the digital economy, including the Digital Free Trade Zone (DFTZ), e-commerce, high tech manufacturing, robotics, automation, big data and artificial intelligence. This is likely to benefit companies in the manufacturing, logistic and technology sectors like Inari, DRB Hicom, Malaysia Airport and rubber glove players (Top Glove, Hartalega, Supermax, Kossan).

Construction to benefit from rollout of infrastructure projects
Contractors are expected to benefit from the pipeline of infrastructure/construction projects which we expect to be mentioned in the Budget 2018. New contracts which have not been awarded and are slated for implementation in 2018 include the East Coast Rail Link (ECRL), MRT 3 Circle Line, and KL–Singapore High Speed Rail (HSR). Potential beneficiaries under coverage include Gamuda, IJM Corp, YTL Corp, WCT and SunCon.

Status quo for sin taxes?
We are of the view that the government is unlikely to raise sin taxes for the tobacco, brewery and gaming sectors as further increase in taxes will only divert the trades to smugglers and underground operators. This will be neutral for gaming (Genting, Magnum and Berjaya Sports Toto), tobacco (BAT) and brewery stocks (Carlsberg and Heineken
Malaysia) under our coverage.

Mildly positive for market. Maintain KLCI target of 1,790pts
Overall, we expect Budget 2018 to be mildly positive for the market via boost in consumer sentiment. We maintain our KLCI target of 1,790pts (16x P/E) and top three picks.
beneficiaries budget 2018

beneficiaries budget 2018

source: CIM Research – 06/10/2017