• Government proposed to allocate RM386.1bn under the revised budget to boost the economy by 4.5% in 2023. Overall, the budget targets to lower down the living costs while ensuring the smooth recovery on the economy.

• Key highlights include the (i) higher DE of RM97bn, (ii) changes in selected personal tax structure and (iii) extension of the green energy policies.

• Fairly positive to the stock market given no Capital Gain Tax on listed companies was being implemented.

• Sectors that we favour include the construction, building material, automotive, consumer, telecommunication, tourism, plantation and healthcare sectors.

Budget 2023 key highlights

• Forecasted 2023 GDP growth at 4.5% (vs. earlier forecast of 4.0%-5.0%)

• Fiscal deficit expected at 5.0% (vs. 5.6% in 2022)

• Operating Expenditure – RM289.1bn

• Development expenditure – RM97.0bn

• Emergency fund – RM2.0bn

• Sabah allocation – RM6.5bn, Sarawak allocation – RM5.6bn

• Luxury Goods Tax

• Excise duty to be imposed on liquid and gel products that consist of nicotine

• Reduction of tax from 17% to 15% for first RM150k for MSME.

• Personal Tax – reduce 2% for income below RM100k, while increase of 0.5-2% for income >RM100k-RM1m

• Ministry of Education – RM55.2bn (vs. RM52.6bn in 2022)

• Ministry of Health - RM36.3bn (vs. RM32.4bn in 2022)

• Ministry of Home Affairs – RM18.5bn (RM17bn)

• Ministry of Defence – RM17.7bn (RM16bn)

• Cash aids: total subsidies, assistance and incentives allocation – RM55bn

• RM800m to provide RM100 e-wallet credit for M40 group

• RM725.0m allocated for JENDELA, expansion 5G coverage to 80%.

• Affordable homes programs: PPR (RM367.0m) and RMR (RM358.0).

Summary

• Government has allocated RM386.1bn in Budget MADANI, 3.7% higher as compared to RM372.3bn in the first tabling during Oct-2022. We observed that most of the initiatives are tackling the elevated living costs and rebuilding the economy.

• Fairly positive to the stock market. We are not surprised with the revised Budget 2023 as it was somewhat similar to the previous Budget that was tabled in Oct-2022 and we opine this is fairly positive towards the market as no Capital Gain Tax was proposed. Operating Expenditure and Development Expenditure have been allocated RM289.1bn and RM97bn, respectively, while RM2bn is allocated for emergency fund.

• Another expansionary budget. MOF is projecting that the economy could grow at 4.5%, after a stellar recovery of 8.7% in 2022. We believe the GDP target is achievable with the reopening activities from China after the borders are uplifted in Apr-2022 for Malaysia. Meanwhile, on the fiscal deficit, MOF is expecting that it should reduce to 5.0% from 5.6% in 2022.

M+ Online view

• Positive-skewed budget. There were no negative surprises in the revised budget. We understand there were speculations on the (i) “sin”-tax and (ii) capital gain tax. For capital gain tax, our PM mentioned it will be discussed with certain parties in 2024 and it will be implemented for disposal of unlisted shares. Hence, the market may have priced in earlier on and the market could rebound next week.

• Positives for East Malaysia. RM12.1bn is allocated for East Malaysia for developments. Another RM2.5bn is put in for the implementation of public infrastructures such as road projects, street lights, water and electricity supply.

• Winners. Given the higher DE in the Budget 2023, it should benefit the construction and building material segments, while other beneficiaries include the renewable sector, telco, tourism, plantation and healthcare sectors. “Sin” sectors may turn higher after the sell down these few weeks, while no capital gain tax was stated will provide upside potential at least for 2023.

• Losers. Luxury goods tax could be introduced and might impact certain discretionary items, while the excise duty to be imposed on liquid and gel products that consist of nicotine could affect the demand for vape or e-cigarettes.

• The FBMKLCI likely to be supported above 1,450. As the sentiment was more negative prior to the Budget 2023, we believe with the speculations on sin tax and capital gains tax being removed from the equation, upside should be expected next week, barring any unforeseen negative factors from Wall Street.

Source: Mplus Research - 27 Feb 2023