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PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 14 Nov 2019, 9:44 AM

 

PublicInvest Research Budget2020 - In The Right Direction

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Budget 2020 was another keenly-anticipated event, by many counts. While the markets would have forgiven the new government with Budget 2019 (announced in November 2018) considering its short 5-month time frame to craft something concrete, the additional 12 months since then would have given the government ample time to chart out the country’s growth path – and they did not disappoint. We acknowledge that not all issues may have been addressed comprehensively (measures to enhance the country’s competitiveness and improve productivity, amongst others), we opine that not everything can and will be resolved in one fell swoop. While we had also been one griping about the apparent lack of growth initiatives to-date, we now concur with the Honorable Finance Minister and see Budget 2020 as growth-centric with sufficient measures to impact the economy positively, enhance job creation and structural reform, while at the same time not harming the government’s commitment to restoring fiscal health in the medium term.

Market reaction: Budget 2020 appears to be balanced, with no punitive measures on corporates announced, yet most Ministries (in particular Education and Health) will get even larger allocations. By some measure, corporate Malaysia is also a winner alongside consumers, with the exception of Number Forecast Operators perhaps. Individually, players like G3 Global may be seen as potential beneficiary from the government’s strategic push to attract companies in high-technology, manufacturing, creative and new economic sectors. If eventually materialising, the development of Pulau Carey will benefit the likes of Sime Darby and A&M Realty, large landowners there. Greater proliferation of digital infrastructure may benefit the telecommunications players and enablers such as GHL Systems and Revenue Group. Greater provision of local content could benefit Media Prima and Astro Holdings, while allocations to e-sports may benefit Sedania Innovators which ventured into the space recently. The cabinet’s approval for the acquisition of the 4 tolled highways should lift Gamuda and provide closure to the issue.

Expectations were for an expansionary budget, and we got one. A lot more is mentioned in terms of growth initiatives, a key sticking point for investors who may have been disappointed to-date (and which explains the market lull). Corporate Malaysia is also seemingly less-bruised this time round as compared to Budget 2019. In essence, we see the market reacting positively to Budget 2020 given the positive undertones. Shorter-term sentiment will also be lifted by the US and China coming to a partial agreement in their trade dispute 2 days ago. We remain consistent in our view of a better 2H CY19 (though markets are not reflecting as such, yet) going into 2020, this underpinned by some form of piece meal resolution to the US-China trade tiff despite both countries’ current posturing and bravado. This has just been achieved 2 days ago, with a “Phase 1” deal agreed on in-principle. On this note, we maintain our 2019 year-end KLCI target at 1,690 points.

Malaysia is still a clear laggard (FBM KLCI, -7.9% YTD). Expectations of improvement on the macro front will drive sentiment, as is the government’s focus on growth in its 2nd year of administration post “fire-fighting” in the 1st. While consumers are seemingly lacking confidence and businesses appearing reluctant in committing to investment decisions, the government has stepped in (albeit in a targeted manner) with a slightly expansionary Budget 2020. With improving fundamentals of its own, the Malaysian market may also get a lift from liquidity driven infusions, particularly if rates are cut globally (US Federal Reserve, etc).

For stocks, we still like CIMB Group, Genting, IJM Corporation, Serba Dinamik Holdings, Sapura Energy, D&O Green Technologies, EA Technique, Mega First and Ta Ann Holdings.

Source: PublicInvest Research - 14 Oct 2019

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