• Budget 2019 attempts to strike a fine balance between fiscal management and national debt rationalisation on one hand, and the promotion of nation building and the rakyat’s wellbeing (particularly, containing the rising cost of living) on the other.

• While the government realises the importance of consolidating the nation’s fiscal position, this will be carried out on a gradual basis over a number of years in order not to “choke” the economy. It projects the nation’s fiscal deficit to peak at 3.7% of GDP in 2018 before easing to 3.4%, 3.0% and 2.8% in 2019-2021.

• As hinted by the government over the last few months, Budget 2019 entails both gains and pains for the men and women on the street. Among the gains are the “Bantuan Sara Hidup” cash grants, bonuses to civil servants and pensioners of RM500 and RM250 respectively, increase in the monthly minimum wage to RM1,100 from RM1,050 (which is a pain to manufacturers and planters), a blanket freeze on toll rate hikes for city highways and abolishment of tolls for motorcycles for both Penang bridges.

• Among pains are a new departure levy on travellers (from June 2019), a new duty on sugary beverages (from April 2019) and a more restrictive petrol subsidy that will only benefit motor vehicles with an engine capacity of 1.5 litre and below and motorcycles.

• Budget 2019 promotes home ownership by securing the buy-in from Real Estate & Housing Developer’ Association Malaysia (REHDA) to cut prices for new launches and unsold stocks by 10%. We believe this is a “win-win” situation as this will help to improve affordability of prospective buyers, and boost sales and cash-flow generation for developers (albeit at lower margins). The budget also entails various measures to help to reduce costs incidental to the acquisition of a property by the low-income group.

• The budget will set tongue wagging among the investment bankers with a planned airport asset REIT. The government hopes to raise RM4bil from the sale of a 30% stake during an IPO.

• Sector-wise, the clear losers are gaming (due to the higher casino license fee and duties on casino gross income), sugar refining (due to the tax on sugary beverages that reduces demand for sugar) and to a certain extent, manufacturing and plantation (due to the increased minimum wage, but typically, glove manufacturers and certain contract manufacturers are able to pass on the higher labour cost).
• We have not been able to identify any clear sector winner, although certain sectors do come quite close to being one such as property (better sales and cash flows at the expense of margins) and consumer (cash grants, bonuses, toll freeze are offset by departure levy and a more restrictive petrol subsidy).
• We believe the biggest budget winners are prospective home buyers with the 10% discount on prices but at the expense existing home owners, as the 10% discount will surely exert downward pressure on prices in the sub-sale market.

Source: AmInvest Research - 2 Nov 2018