DOES the revised Budget 2023 contain adequate measures to cushion external blows from a slowing global economy and still deliver moderate economic growth apart from setting the pace for the nation to achieve its full potential through various strategic initiatives?
Can it attract the bull to return to Bursa Malaysia which has year-to-date (YTD) retracted -2.6% to close at what is deemed a pathetic 1,456.80 as of yesterday (Feb 24)? Below are some food for thought from two prominent local research houses:
Hong Leong Investment Bank Research
We feel that the re-tabled Budget 2023 was a relatively muted one from a market perspective with no major wows or shocks.
But really, this isn’t such a bad thing – unlike Budget 2022 which hit with its Prosperity Tax and stock stamp duty hike, the re-tabled Budget 2023 did not have any significant “market spooking measures”.
Higher disposable income in the M40 category (lower tax) and relatively sustained cash hand-outs for the B40 is broadly positive for the consumer sector.
Construction should benefit from the 16.6% increase in development expenditure (ex-1MDB bond repayment) though noting that the MRT3 (Mass Rapid Transit Line 3) would be downsized from RM50 bil to RM45 bil at the very least.
Aviation, brewers, REITs (hotels, prime malls) and Genting Malaysia Bhd should benefit from the RM250 mil allocation to promote tourism and Visit Malaysia Year 2025 which targets 23.5 million tourists and RM76.8 bil receipts (still below pre-pandemic levels though).
Healthcare players across our coverage should also benefit from the increase in healthcare allocation (second highest) from RM32.4 bil to RM36.3 bil.
Absence of any sin-excise/tax hike should offer a sigh of relief for casino, number forecast operators (NFOs), brewers and tobacco – noting that the latter two should also benefit from continued efforts to clamp down on illicits.
The “vape tax” implementation could be a precursor to legalising the vaping industry, thus providing a potential new source of income to British American Tobacco (M) Bhd which has its own vape product (Vuse).
The FBM KLCI has been the worst performing index within ASEAN-5 year-to-date (YTD) in part due to jitters that market unfriendly measures could feature in the re-tabled Budget 2023.
With this risk now abated, some market reprieve could be in the offing. Pending the completion of the 4Q FY2022 results season, we keep our FBM KLCI target of 1,580 unchanged.
TA Securities Research
We foresee post-Budget 2023 performance being neutral to slightly positive given YTD underperformance of the FBM KLCI and measures highlighted in this budget to generate higher revenue, address the high cost of living, assist micro, small and medium enterprises (SMEs), nurture green initiatives, promote digitalisation and cut government debt.
There are no significant direct measures to cater for the equity market except for the usual tax incentives/accelerated capital allowance/investment tax allowance on capital expenditure, an extension of the existing tax deduction for technology companies in Bursa Malaysia, tax incentives for the development of electric vehicle (RV) industry and tax deduction of up to RM1.5 mil on listing expenses, among others.
There are no details on the government’s intention to impose a low-rate capital gains tax on disposal of private company shares from 2024.
While this will not affect investors’ share trading in listed companies, it is unclear whether it will have bearing on listed companies disposing their stake in subsidiaries or associate companies deemed as private limited company (Sdn Bhd). If it does, its bad news for listed players if the tax rate imposed is high.
Trading at Bursa Malaysia counters at RHB Jalan Tun Razak become normal after having the technical problem yesterday. Starpic by Azman Ghani
That aside, the huge RM97 bil spending on development expenditure should benefit listed players as they bid for contracts related to various infrastructure, roads and highways, school, hospitals, etc.
Besides, the commitment to undertake open tenders and stop questionable procurements and project awards through direct negotiations or close tender should also be favourable.
For instance, the door is open now to bid for the RM15 bil flood mitigation project that could benefit Gamuda Bhd, IJM Corp Bhd, Salcon Bhd, Taliworks Corp Bhd and JAKS Resources Bhd.
All-in-all, we continue to advocate increasing exposure in key heavyweight sectors and undervalued stocks as the FBM KLCI is cheap, trading at a consensus CY2024 PER (price-to-earnings ratio) multiple of 12.1 times vs comparable peers’ 12.8 times.
Expect a market rerating in 2H 2023 on better clarity on domestic policies, the conclusion of impending six state elections, recovery in corporate earnings, easing of monetary tightening in the US, and more sound policies and strategic economic drivers in Budget 2024 that will instill confidence in investors about the country’s leadership and future direction. – Feb 25, 2023
