Highlights

• Budget 2021 safeguards the rakyat’s wellbeing, jobs, businesses and the economy as a whole as we navigate the unknown territory amidst the Covid-19 pandemic.

• The new Bantuan Prihatin Rakyat (BPR) scheme under Budget 2021 will benefit 8.1mil people with an allocation of RM6.5bil. Families will stand to receive RM500 to RM1,800 while single individuals will benefit from a RM350 payout under the scheme. The income tax rate for the taxable income range of RM50,001–RM70,000 will be reduced by 1 percentage point to 13% from 14%.

• In addition, the Employees Provident Fund (EPF) mandatory contribution rate will be cut to 9% from 11%, while EPF members who have lost their jobs due to the impact from Covid-19 can withdraw RM500/month from Account 1 for 12 months starting January 2021 (total withdrawal up to RM6,000). All these should help safeguard the financial wellbeing of the rakyat, particularly the low-income group, while the sustained consumer consumption should help to drive economic recovery.

• The budget extends the targeted payment assistance (TPA) to borrowers in the B40 category who are recipients of the living expenses assistance (BSH) and micro enterprises with loans approved of up to RM150,000. They are given two options, i.e. either to defer loan instalments for three months, or lower the instalment amount by 50% for six months. This should ease the cash flows of these borrowers impacted by the Covid-19 pandemic and mitigate the risk on banks’ asset quality.

• The government intends to pick up 60% of the wage bill for six months for businesses that hire Malaysians to replace foreign workers. This should help to reduce the country’s reliance on foreign workers while creating jobs for the local people. In addition, the government will retrain 8,000 retrenched employees of airline companies in Malaysia with an allocation of RM50mil.

• The budget will provide a RM1bil allocation to encourage investment into technology and high value-add activities. This should benefit technology companies under the Penang Automation Cluster. Meanwhile, telecommunications operators will provide free data worth RM1.5bil to help accelerate digitalisation amongst the low-income group.

• The budget will allocate RM1bil to combat the third Covid-19 wave, including for purchasing reagents, testing kits, personal protection equipment (PPE), hand sanitisers, lab supplies, medicine and screening zone facilities and thermometers in healthcare facilities. Glove makers Top Glove, Hartalega, Supermax and Kossan are doing their part to fight the pandemic by forking out RM400mil to fund the purchases of Covid-19 vaccines and medical equipment.

• A 38% increase in development expenditure to RM69bil in the budget is positive to the construction sector. There are significant allocations for both rural development as well as mega projects. Meanwhile, the property sector should benefit from stamp duty exemption on the transfer deed and loan agreement for the purchase of the first residential house worth up to RM500K from 1 January 2021 until 31 December 2025.

• We maintain our end-2020 FBM KLCI target of 1,530 pts based on 16.5x our 2021F earnings projection (+34.2%, after a 17.9% contraction in 2020F). Our top picks reflect names that are likely to benefit from the recovery of the domestic economy, export sector as well as global trade, i.e. Maybank, Tenaga Nasional, Axiata Group, Dialog Group, RHB Bank, Westports, Malaysia Airports, Allianz Malaysia, MMC Corp and Kumpulan Powernet.

Source: AmInvest Research - 9 Nov 2020