Highlights

• First budget under the 12th Malaysia Plan (12MP); focuses on healing the economy. Budget 2022 aims to heal the economy in the short term through various revitalisation efforts. As expected, Budget 2022 remains expansionary. It is equipped with the various measures to support the people and businesses, develop new shoots of growth and ensure sustainable growth in the still challenging and uncertain environment. This budget has unveiled measures to chart the pathway and to support the overarching aim of the 12MP. In 2021, GDP is expected to grow by 3–4%. As for 2022, GDP growth is expected to grow by 5.5%–6.5%. Recall that in the 1H2021, the economy has grown by 7.1%. Although 3Q2021 GDP will be affected by the recent movement control, 4Q2021 GDP is expected to show a recovery as almost all states in Malaysia have moved to Phase 4 with the economy and social activities allowed to operate at full capacity.

• Cukai Makmur should cause short-term volatility in the market. Cukai Makmur is a one-off special tax which will apply to companies with chargeable income above RM100 million. We gather that for the first RM100 million, the chargeable income will be subjected to income tax at a rate of 24%. As for the remaining chargeable income above RM100 million, a 33% rate will apply. All these will be applicable for the year of assessment 2022. Out of the 96 stocks that we cover, 62 (or 65% of them) have profit before tax at above RM100mil. The impact to the bottom lines for these companies ranges from 1.2% to 11.8%. We estimate that the sector with sharpest short-term impact on 2022 earnings are gloves (average 10.3% impact), oil and gas (average 10.1%) and banking (average 8.6%). See Exhibit 1 for our estimates on the 62 stocks that we cover.

• Higher stamp duty on contract notes should affect trading volume in the short term. Stamp duty rates on contract notes will now be 0.15% (from 0.10%). Additionally, the RM200 stamp duty limit for contract note has been abolished. We expect the measure to result in lower trading volume for Bursa Malaysia in the near term. However, in the long run, as market participants get used to the new fee, we believe that the volume will normalize as the long-term determinant is still earnings growth and fundamentals of the Malaysian stock market as well as its ESG prospects.

• Notable sectors – plantation and property. The reduction in windfall tax payments is positive for plantations as it would help improve the net profit of planters. We estimate that the improvement in the net profit of the planters to be small though, at less than 5%. This is because most of the plantation companies have already expanded to Indonesia. In addition, the large companies also have sizeable downstream operations. For companies with large exposure to Sabah, we think that the new proposals may be negative as the doubling of the windfall tax rate offsets the increase in the windfall tax threshold level. For the property sector, real property gains tax (RPGT) will be exempted for house sales starting from the sixth year of purchase. (previously 5%). We believe this will gradually spur secondary transactions while curbing excessive speculation.

• Positive on the ESG front. On the governance or G aspect of ESG, we gather that the Securities Commission will make it compulsory for public-listed company to have at least one female director. We are positive on this as a higher female representation in the board promotes gender diversity. This is good for governance in the long run to avoid the “groupthink” trap. As for environment or E aspect of ESG, Malaysia aims to be carbon neutral by 2050. Malaysia plans to launch the Voluntary Carbon Market which will be managed by Bursa Malaysia. There will be 100% road tax exemption for electric vehicles. There is a RM450mil allocation to protect the environment and biodiversity. Lastly, there is plan to launch green sukuk with amount of RM10bil. There is a RM1 billion allocation to assist MSMEs to increase green and low-carbon practice. On the social front, the limit of individual income tax relief for upskilling and self-enhancement course fees will be raised to RM2,000 (previously RM1,000). This will also be extended to year of assessment 2023. In addition, those who undertake courses with any professional bodies (inclusive of accounting, finance and ESG-related) will be eligible for a tax relief of up to RM7,000.

Source: AmInvest Research - 1 Nov 2021