BURSA Malaysia’s FBM KLCI constituents are expected to face zero-to-negligible impact should the Government proceed to impose the Goods and Services Tax (GST).
AmBank Research is of the view that most of the sectors – banks, oil & gas, plantation, telcos, power, healthcare, gloves, manufacturing, gaming and technology – will have zero-to-negligible impact from the GST. These sectors account for 93.5% of the FBM KLCI index weightage.
The research house said it has undertaken channel checks and an analysis into companies under its coverage on the potential impact from the re-introduction of the GST at 6% under a maximum rate scenario.
The remaining sectors which make up 6.5% of the FBM KLCI index weightage comprise automobiles, food, consumer products and retail. These benchmark index constituents are Sime Darby Bhd, Nestle (M) Bhd and MR D.I.Y Group (M) Bhd.
“Car prices are expected to increase by 1%-3% following the switch back to GST – the opposite effect to the 2018 SST switch – while essential food manufacturers such as Nestle could partly benefit from cash assistance to the B40 and M40 groups,” opined analyst Alex Goh in a recent strategy note.
“Assuming that the GST re-introduction reduces the FY2023F core earnings of these three companies by 10%, we estimate under a worst case scenario a manageable 1.2%-point impact to our FBM KLCI 2023 EPS (earnings per share) growth forecast of 8.3% to 7.1%.”
The GST was first implemented on April 1, 2015 at 6% to replace the sales and service tax (SST). But it was abolished in September 2018 with the SST reinstated when the Pakatan Harapan Government came to power.
However, AmBank Research is wary of the GST impact on the property development, REIT (real estate investment trust) and media sectors which are not represented in the FBM KLCI.
“The property sector could be vulnerable to softer demand from higher product prices amid heightened affordability concerns,” cautioned the research house. “REITS could experience slower footfall and tenant sales growth on reduced consumer spending while the media sector could suffer from lower subscribers and adex (advertising expenditure) spending.”
AmBank Research further noted that non-FBM KLCI stocks under its radar that could be affected include:
- Consumer: Berjaya Food Bhd, Cocoaland Holdings Bhd, Mynews Holdings Bhd, Padini Holdings Bhd & Power Root Bhd.
- Automotive: Bermaz Auto Bhd, DRB-Hicom Bhd, MBM Resources Bhd, Tan Chong Motor Holdings Bhd & UMW Holdings Bhd.
- Media: Astro Malaysia Holdings Bhd, Media Prima Bhd, Lagenda Properties Bhd, S P Setia Bhd, Mah Sing Group Bhd, Sime Darby Properties Bhd, UEM Sunrise Bhd, Sunway Bhd & IOI Properties Group Bhd.
- REITs: IGB REIT, Pavilion REIT & Sunway REIT.
Outlook-wise, AmBank Research expects the FBM KLCI index to be range-bound between 1,500 and 1,600 points in the near-term as positivity from the recent re-opening of international borders may be offset by stagflationary worries, earnings volatility amid commodity price swings, further supply chain shocks from Russia being shunned by the global economy, GST re-introduction and political noises running up to the 15th general election (GE15).
“Our worst-case outlook remains that the FBM KLCI dropping to 1,415, pegged to 2022 PE of 14.8 times, driven by substantive earnings disappointments, fresh outbreaks of new COVID-19 variants, further geopolitical shocks and a reversal of foreign net flows,” projected the research house.
“We maintain a blue-sky FBM KLCI index scenario at 1,820 pegged to 0.5 times SD (standard deviation) above its five-year median based on a stronger 2022 GDP (gross domestic product) growth at 6%.” – June 6, 2022
