THE RM400 mil collective contribution by the Big Four glove makers to help boost the country’s fight against the COVID-19 outbreak is deemed a better option than a windfall tax that may have a long-term effect on the industry.
CGS-CIMB Research is of the view that such one-off contribution will not affect core earnings whereas a windfall tax would be recurring and could permanently reduce future potential earnings of industry players.
In this regard, the research house gathered that Top Glove Corp Bhd, Hartalega Holdings Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd have committed to contribute RM185 mil/RM90 mil/RM75 mil/RM50 mil which works out to be 1.8% of FY8/2021F, 3.5% of FY3/2021F, 2.3% of FY8/2021F and 7.2% of their FY12/2020F net profit forecasts respectively.
Additionally, CGS-CIMB Research identified the four other “key winners” as:
- The consume sector which should benefit from a large cash handout via the Bantuan Prihatin Rakyat of RM6.5 bil and 2% lower employee Employees Provident Fund contribution rate for 12 months;
- British American Tobacco Malaysia Bhd as the legalisation of vaporisers in Malaysia will allow it to expand its revenue base;
- Rail contractors could benefit from the mention of Klang Valley Mass Rapid Transit 3 (KVMRT 3) and KL-Singapore High Speed Rail projects as potential new rail projects; and
- Hospital and pharmaceutical companies will benefit from increased funding for the Health Ministry and income tax relief for vaccination and medical treatment.
Elaborating further on plans to impose a 10% excise duty on all e-cigarette and vape devices, CGS-CIMB Research noted that BAT Malaysia would finally be able to enter the burgeoning vape market whose popularity has grown from virtually zero market share in 2017 to 9% in 4Q CY2019.
“This, coupled with tighter enforcement, will allow BAT to expand its earnings base,” opined the research house. “In fact, we suspect that vapes were the culprit for the illicit share to rise to 65% in August 2020.”
Meanwhile, TA Securities Research is neutral on Budget 2021 with regard to its impact on the equity market. It maintained its end-2020 and 2021 FBM KLCI target of 1,550 and 1,720 points based on CY2021 and CY2022 price-to-earnings ratio of 15.5 times and 17 times respectively.
While construction players should benefit from various urban and rural development projects, the research house noted that much of them, including new mega projects such as the MRT3 and the Johor Bahru-Singapore Rapid Transit System, are within its expectations.
“Thus, there is no change in our “underweight” call on the sector,” justified TA Securities Research. “The same applies to measures announced for the property sector that came largely within expectations.”
From a total average return perspective, the research house expects the FBM KLCI to underperform during the first two months of post-budget announcement before bouncing back for a year-end window dressing or New Year rally.
“This trend should persist as investors wait for the outcome of US elections and the Nov 23 voting day to pass the Budget 2021, while more cases of COVID-19 as winter approaches will affect market sentiment in the interim period,” it added. – Nov 7, 2020
