• Following the Covid-19 pandemic, we think the expansionary Budget 2022 may start the ball rolling for the economy with higher DE while also focusing on the welfare of the rakyat.

• However, the one-off “Cukai Makmur” and changes in the contract notes stamp duty may dampen the market sentiment for the near term; these factors may affect Bursa Malaysia and stock broking companies.

• Nevertheless, we believe there are some winners under such scenarios, namely the automotive, consumer, telecommunication, technology, healthcare, e-sports, tourism and healthcare sectors.

Budget 2022 key highlights

• 2022 GDP growth of 5.5-6.5%

• 6.0% fiscal deficit target for 2022

• Higher Development Expenditure at RM75.6m

• Covid-19 fund of RM23.0m to combat the pandemic

• Ministry of Health being allocated RM32.4bn

• Allocation of RM8.2bn for Bantuan Keluarga Malaysia (BKM)

• “Cukai Makmur” being proposed on above RM100m taxable income

• Contract notes stamp duty to be increased to 0.15% (from 0.10%)

• RPGT exemption for property units above 6 years

• Expansion of 5G services and increased allocation on JENDELA

• Several tax waiver on electric vehicles

Summary

• Mother of all budgets - RM332.1bn. Budget 2022 is the largest budget in history with the theme of “Keluarga Malaysia, Makmur Sejahtera”. The budget focuses on 3 pillars namely, Strengthening Recovery, Building Resilience, and Driving Reforms and has 3 main focus areas, (i) Rakyat’s Well Being, (ii) Resilient Businesses and (iii) A Prosperous and Sustainable Economy.

• Expansionary budget to support the GDP growth. Following a contraction in 2020 GDP by -5.6% due to Covid-19 pandemic, MOF expects economic activities to grow around 3-4% for 2021, and projecting an expansion of 5.5-6.5% (IMF: expecting 5-6% growth) into 2022. We think the target should be achieved following the decent vaccination drive (fully vaccinated citizens stood at 74.8% as at 30th Oct). Despite the expansionary budget, the fiscal deficit is projected to reduce to 6% to GDP as compared to a 6.5% to GDP in 2021.

Market view

• Mildly positive budget… Overall we view the Budget 2022 positive to the economy following the Covid-19 pandemic as (i) cash aid - BKM, (ii) EPF contribution rate reduction as well as (iii) JaminKerja will be able contain and boost the domestic consumption and steer the recovery going forward. Also, the higher DE could start the ball rolling on the domestic economy such as construction activities. In the meantime, we expect revenge travelling will take place and could provide upside potential to the tourism industry, benefiting the domestic economy.

• …with downside risk expected in the market. However, the surprise one-off “Cukai Makmur” on corporates that have more than RM100m PBT for the year 2022 as well as the increase in contract notes stamp duty may dampen the market sentiment. Do note that, around 15% of the public listed companies are having more than RM100m PBT and the total earnings impact will be roughly decline by 10-12% on the KLCI heavyweights (based on back of the envelope calculation).

• Winners. Despite the Cukai Makmur being proposed, we still think there are some winners, which include automotive, consumer, telecommunication, technology, healthcare, e-sports, tourism and healthcare.

• Losers. Nevertheless, the one-off Cukai Makmur, which may dampen the earnings, affecting higher earnings capabilities (mostly higher market cap) companies and sentiment may turn south for them. Also, stock broking firms and Bursa Malaysia might experience softer trading activities amid the removal of capping of RM200 contract notes stamp duty.

• FBMKLCI may take a beating. Overall, the Bursa exchange and the FBM KLCI may perform a knee jerk reaction from the “Cukai Makmur” and contract notes stamp duty changes. Support is located around 1,548, followed by 1,514. Meanwhile, resistance is pegged around 1,581, followed by 1,604.

Source: Mplus Research - 1 Nov 2021