Highlights

• The newly-announced Budget 2018, in our opinion, is rakyat- and business-friendly, comprehensive, with plenty of goodies for the needy, while maintaining fiscal prudence.

• From the equity market standpoint, among the "budget-sensitive" sectors, the Budget 2018 appears to have more profound impact on construction (via the rollout of projects), consumer (via lower taxes and cash handouts), small and medium enterprises (SMEs) (via government-guaranteed/soft loans and grants), and manufacturing (via matching grants and tax incentives for smart facilities and automation) sectors.

• The gross development expenditure has been maintained at RM46bil. We believe this stands testimony to the government's commitment towards infrastructure spending despite difficult times. The key recipients are relatively unchanged from previous budgets. They are roads/rails, water and electricity supply, flood mitigation, hospitals, schools and low-cost housing.

• Among the benefits the low-income group will enjoy are: (1) a two percentage point cut in income tax rate (for the taxable income between RM20,000 and RM70,000); (2) the extension of the BR1M payout of up to RM1,200 per household; (3) one-off special payments of RM750 to government retirees, and RM1,500 to all civil servants and village heads.

• On the other hand, the budget has only a limited impact on private property developers (via the extension of the PR1MA stepped-up financing scheme to non-PR1MA private housing projects). To promote home ownership for the low-income group, Budget 2018 continues to focus on various government-backed affordable housing schemes such as Projek Perumahan Rakyat, Rumah Mesra Rakyat, PR1MA and PPA1M.

• In support of IR 4.0 investment and business activities, the government will provide a matching grant of RM245mil under the Domestic Investment Strategic Fund to upgrade smart manufacturing facilities, as well as other tax incentives for automation. These could benefit V.S. Industry, MPI, Inari, Top Glove, Hartalega and Kossan.

• Healthcare remains in focus with a RM27bil allocation for medical supplies and construction, maintenance, and upgrading of healthcare facilities. Allocations and various incentives have also been put in place to promote healthcare/medical tourism.

• With no major surprises from Budget 2018, we maintain our end-2017 KLCI target of 1,745pts and end-2018 KLCI target of 1,900pts, based on 17.5x 2017F and 2018F earnings. Our top BUYs are Tenaga Nasional, Public Bank, RHB Bank, Gamuda, Sunway, Bermaz Auto, Prestariang, Kimlun, Luxchem and Berjaya Food.

Source: AmInvest Research - 27 Oct 2017