TA Securities is pessimistic on the impact of Budget 2022 on the equity market as companies with chargeable income of more than RM100 mil will be hit by a windfall tax of 33%.
However, a double whammy on the equity market is the higher stamp duty, up 0.15% from 0.1%. Coupled to the windfall tax, they will dampen sentiment and that could lead to selling pressure when the market reopens tomorrow.
“Earnings of big caps will be affected, especially banks, gloves, oil & gas, plantations, telcos and utilities companies.
“It will lower the calendar year 2022 earnings of stocks under coverage by 10% and the FBMKLCI component stocks by 10.7%. Among the biggest hit component stocks are TENAGA (Buy, TP: RM12.50), PETGAS (Buy, TP: RM18.70), PBBANK (Buy, TP: RM4.70), MISC (Buy, TP: RM8.00) and HARTA (Buy, TP: RM7.11),” it says.
TA Securities says the windfall tax can reduce earnings of stocks under its coverage as much as 10% with the largest impact felt by the power & utilities sector, followed by gloves and banks. This is not surprising given these sectors’ high domestic presence.
The earnings impact on FBMKLCI component stocks is greater at 10.7% and the biggest hit component stocks are Tenaga, PETGAS, PBBANK, MISC and HARTA.
“We cut our end 2021 FBMKLCI target of 1,630 to 1,575 based on CY22 PER of 15x but advocate “Buy-on-Weakness” recovery plays, undervalued blue chips, cyclical sectors and growth stocks. With countries around the globe cutting taxes to attract foreign investment, we do not expect the government to extend this one-off tax beyond 2022 as the economy rises beyond pre-COVID-19 levels.
The removal of the Real Property Gains Tax (RPGT) from sixth year onwards and the Government’s allocation of RM2 bil under housing credit guarantee scheme and RM1.5 bil for low-cost housing are positive for the property sector as well as 50% sales tax exemption for CBU imports, 100% for CKD locally assembled passenger cars will benefit the property and automotive sector.
Taxman cometh
Hong Leong Investments Bank (HLIB) says the most obvious hit from Budget 2022 is “Cukai Makmur”, denting the upper tier of corporate Malaysia.
Commenting on the one-off windfall tax, analysts from HLIB say, “Using our CY22 forecasted group earnings for the KLCI constituents (though not necessarily methodologically correct), we estimate the Makmur Tax would reduce our baseline projection by -11.4%.
“However, its actual impact may be lower as the tax is likely at the individual subsidiary level rather than group resulting to a lower taxable earnings base and foreign subsidiaries that contribute to group earnings should be exempted from this.
“Higher taxes aside, we believe there may be a secondary effect to corporate earnings – whereby companies may (i) delay profit recognition to mitigate the higher tax impact and/or (ii) undertake kitchen sinking exercises since earnings would already be hit by the higher tax,” it says.
Positive outlook
MIDF says a grant subsidy to increase automation rate in 200 services and manufacturing companies might have a positive impact on Panasonic Manufacturing Malaysia (NEUTRAL, TP: RM30.45) which is currently experiencing a shortage of labour workers.
A continuation of Shop Malaysia Online and Go-eCommerce Onboarding, which is estimated to benefit 500,000 local business, may help Aeon co (BUY, TP: RM1.64) to keep local business in their malls. For reference, Aeon co reported occupancy rate of 90.7% in FY19 and 83.8% in FY20.
It says the various allocations to FELDA, FELCRA and RISDA would have positive spill over effects to FGV Holdings Bhd (FGV) (BUY, TP: RM2.36).
“We believe that the wellbeing of FELDA settlers should improve in view of expected higher crop resulting from the initiatives. As a result, this will lead to the higher purchase of fresh fruit bunches by FGV which will increase the CPO production,” it said. – Oct 31, 2021.
