• Budget 2025’s tone was moderately positive, focusing on subsidy rationalisationefforts to improve government’s fiscal position. While the budget continues toexpand, Development Expenditure has been reduced, but likely to have more publicprivate projects. Malaysia GDP is expected to grow by 4.5-5.5% in 2025.
   
• Aside from property tax relief on interest payments and dividend tax of 2%, there wereno major surprises in Budget 2025.
   
• We believe the strong push factors for green initiatives and increased focus on AI,Semiconductor and E&E, positioning Malaysia as a future technology hub.
   
• Winners will include Consumer, Technology, EVs, Solar, Construction, Property andBuilding Materials. Losers include Steel/Iron, Manufacturing, and Beverage segments.

Summary

• Economy continues to grow. Malaysia’s GDP is expected to grow at 4.8-5.3% and with another expansionary Budget 2025 of RM421bn, the MADANI government is projecting a growth of 4.5-5.5% next year. Development expenditure (DE) has been reduced to RM86bn (vs. RM90 in 2024). The government aims to reduce the fiscal deficit to 3.8% (down from 4.3%).

• Services sector supported by tourism. The services sector grew by 5.4% in 1H2024, underpinned by robust household spending, and strong tourism and travel-related activities. It is expected to expand by 5.3-5.5% over 2024-2025. Meanwhile, the Manufacturing and Construction sectors are projected to achieve a decent growth in 2025 at 4.5% and 9.4%, respectively.

M+ view

• Generally positive with neutral aspects. Besides property tax relief on the interest payments and the 2% tax on dividend income tax above the RM100k threshold, there were no major surprises in the Budget 2025. This budget continues to support lower income groups, with cash aids under the form of Sumbangan Tunai Rahmah (STR) to RM13bn from RM10bn in 2024.

• Expanding SST and introduction of Carbon and Dividend Taxes. The SST is being progressively expanded to non-essential imported goods, such as salmon and avocados. A Dividend Tax of 2% on dividend exceeding RM100k has been introduced. Also, the Sugar Tax will increase by up to 40 sen/litre in phases. A Carbon Tax for the iron, steel and energy industries by is planned for 2026.

• Push for “Green” initiatives. The removal of electricity subsidies for usage over 600kWh, coupled with targeted RON95 subsidies set to be implemented in mid- 2025, will encourage solar-related activities and the purchase of EVs. Incentives of up to RM2.4k for CKD electric motorcycles will continue.

• Focus on AI, Semiconductor and E&E. In Budget 2025, the government emphasises the development of the semiconductor and E&E sectors. RM1bn from Khazanah has been allocated for strategic investment in high-value industries like semiconductors and AI-driven sectors. Meanwhile, RM100m in matching funds will be available to develop local suppliers in sectors like E&E, chemical manufacturing, and medical devices.

• Winners. We believe the Automotive, Natural Gas, and Solar sectors will benefit from the positive tone and push for green initiatives under the NETR. The Technology, Property, Construction, and Building Materials sectors are also expected to benefit from the focus on AI, semiconductor and E&E, coupled with the ongoing public infrastructure spending, and property tax relief of RM5-7k over the next 3 years.

• Losers. The increased of minimum wages to RM1.5k may put pressure on labour-intensive sectors like the Manufacturing segment. Also, selected Consumer stocks will be impacted in the short term by the Sugar Tax. Besides, the introduction of the Carbon Tax may negatively impact the industrial products segments, while the Dividend Tax should have a minimal impact on high dividend stocks.
   
• The FBMKLCI and broader market may expect profit taking activities. In view that the market has rebounded over the past two trading days prior to the Budget 2025, we believe most of the positive catalysts have already been priced in, and profit taking activities are likely to emerge next week. Nevertheless, we expect the ongoing initiatives such as the NETR, data center investments, JB-SG SEZ and ongoing infrastructure projects are expected to support market sentiment going forward.

Source: Mplus Research - 21 Oct 2024