2015 BUDGET: PEOPLE ECONOMY MUTED TO EQUITY MARKET
By Chan Ken Yew / Kenanga Investors
We have no doubt that the Rakyat will benefit from the
recently announced 2015 Budget. However, it could be a non-event to the local
equity market, as we see no major surprises. We reckon that most of the
“goodies” that dished out have no significant impact to corporate earnings.
Both tax cuts had also been announced in 2014 Budget and the positive impact
could have factored into analysts’ forecasts. Besides, “goodies” for the Rakyat
may also be neutralised by the implementation of GST in early-2Q14. As such, we
maintain our FY14E and FY15F net earnings growth rates of 4.9% and 11.3%
respectively. On the other hand, we also do not expect strong inflow of foreign
capital in the near-term, as the prospect of stronger sovereign rating inline with
the continued improving fiscal deficit could have largely priced in.
Nonetheless, we reiterate that the strong domestic liquidity position and the
favourable seasonal pattern remain supportive. As FBMKLCI is traded at 7%
discount to its consensus target price of 1,945, the downside risk from here
could be limited. We reiterate our preferred B.O.W. strategy and our year-end
index target of 1,910 at this juncture.
2015 Budget - Prime Minister announced the 2015 Budget last
Friday (10/10/14). We understand that this budget is the final budget to
complete the 10th Malaysia Plan (10MP) and serves as basis for planning and
preparation of programmes and projects under the forthcoming 11th Malaysia Plan
(11MP) that will be launched in May 2015. In this Budget, seven (7) main
strategies were highlighted. These strategies are (i) strengthening economic
growth, (ii) enhancing fiscal governance, (iii) developing human capital &
entrepreneurship, (iv) advancing bumiputera agenda, (v) upholding role of
women, (vi) developing national youth transformation programme and (vii) prioritising
well-being of the Rakyat. The Budget has allocated a total of RM273.9b. Out of
which, RM223.4b is set for operating expenditure, RM48.5b is prepared for
development and RM2.0b is served as contingency fund. In the Budget, corporate
and personal income tax cuts were announced and additional items that exempt
from Goods & Services tax (GST) were clarified. It was announced that a new
mechanism to provide petro subsidies to be developed as well. Within
expectations, hence muted to equity market. In a nutshell, we believe that this
Budget nnouncement springs no surprises
on the local equity market. This is because most of the “goodies” have no
significant impact to corporate earnings.
Besides, the
“goodies” for the Rakyat may also be neutralised by the implementation of GST in
early-2Q15. Furthermore, both tax cuts had also been announced in the 2014
Budget and the positive impact could have factored into analysts’ forecasts
earlier. Thus far, we maintain our FY14E and FY15F net earnings growth rates of
4.9% and 11.3% respectively.
We also do
not foresee strong inflow of foreign capital in the near-term, as the prospect
of stronger sovereign rating inline with the continued improving fiscal deficit
could have largely priced in as well. As for impacts to various sectors (see
Appendix for details), we believe the Budget is generally NEUTRAL to most of
the sectors. However, we do see some sectors with positive tone. These sectors
are: (i) Building Materials, (ii) Construction, (iii) Gloves, (iv) Plastic
Packaging, and (v) Semicon and Telco. Both building materials and construction
sectors are believed to be beneficiaries from a number of major infrastructure
projects including: (i) 4 new expressways, (ii) upgrade of east coast railway
line and (iii) expansions of MRT & LRT light rail services. Gloves,
packaging and semicon players are expected to benefit from an automation
capital allowance of 200% that will be provided on the 1st RM4m expenditure
incurred within the period from 2015 to 2017. Telco, on the other hand, is
expected to benefit from the High-Speed Broadband (HSBB) project and the
building of 1,000 telecommunication towers as well as the laying of undersea
cables. On the contrary, against market expectations,
we did not see much catalyst for the property sector. The announced
Rakyat-friendly measures such as: (i) Youth Housing Scheme, (ii) PR1MA housing,
and (iiI) People Housing Programme, are likely to have no meaningful impact to
developers under our coverage. Recall that the market was expecting the
relaxation of DIBS (Developer Interest Bearing Scheme) for 1st home buyers to
purchase affordable housing and a review of RPGT (Real Property Gain Tax).
All in all, 2015 Budget is a non-event to the local equity
market. We believe the direction of local equity hinges on external uncertainties
and volatilities going forward. Thus far, FBMKLCI declined by 2.0% since
end-September 2014 inline with the decline of 2.9% in Dow Jones Industrial
Average. Having said that, our view and year-end target of 1,910 remains
unchanged. We believe the domestic market will still be supported by the strong
domestic liquidity position and the favourable seasonal pattern. Besides, as
FBMKLCI is traded at 7% discount to its consensus target price of 1,945, the
downside could be limited. Based on the track records between FBMKLCI and its
consensus target, we believe any dips below 1,830 should serve as “Buying On
Weakness” (B.O.W.) opportunities. Apart from YTD underperformers / laggards, we
still like BARAKAH (OP, TP: RM1.74), COASTAL (OP, TP: RM5.94), GAMUDA (OP, TP:
RM5.52), KSL (TB, TP: RM6.63), MUHIBAH (OP, TP: RM3.55), SIME, (OP, TP:
RM10.10), SUPERMX (OP, TP: RM3.23) and VS (TB, TP: RM3.16). Our other 2 Top
Picks - MBSB (OP, TP: RM2.65) and RHBCAP (OP, TP: RM10.00) – have performed
well after the recently announced CIMB-MBSB-RHBCAP merger structure. As such, we
are replacing these 2 Top Picks with MPI (OP, TP: RM6.72) and PMETAL (OP, TP:
RM8.87).
