Yesterday, the PM announced the RM15bn PERMAI stimulus comprising 22 initiatives. Fiscal deficit is projected to remain unchanged at -5.4% for 2021 as it will be financed through re-allocation of existing funds. Our sense is that the stimulus initiatives were largely reiterations of previously announced ones, with some being fast tracked/ extended and allocation expanded; we expect muted market reaction. Maintain 2021 GDP forecast at +6.0% (but cite downside risk due to MCO2.0) and KLCI target at 1,780 (19.3x PE tagged to 2021 EPS).

NEWSBREAK

Yesterday, PM Tan Sri Muhyiddin Yassin announced the RM15bn PERMAI stimulus comprising 22 initiatives based on 3 objectives: (i) combating the Covid-19 pandemic, (ii) safeguarding the rak yat’s welfare and (iii) supporting business continuity.

HLIB’s VIEW

Fiscal deficit remains unchanged at -5.4%. Total headline stimulus was RM15bn, however by our estimates, new spending measures amount to RM3.8bn (0.2% of GDP). According to the PM, the PERMAI assistance package will be financed through the re-allocation of existing funds based on current priorities and more prudent spending. As such, there should be no impact to the fiscal deficit, which is anticipated to remain at -5.4% of GDP for 2021. While there is some downside risk on revenue collection due to re-imposition of MCO2.0, we opine fiscal deficit target is broadly attainable as the government adjusts its pace of spending.

Maintain 2021 GDP forecast at +6.0% YoY, with downside risk. While the measures announced will provide some respite to businesses, the imposition of MCO2.0 in 6 states (68.1% of GDP), as well as 5 states under CMCO and 2 states under RMCO, is expected to shave -0.7ppt off GDP by our calculations for every 2 weeks. As more economic sectors are allowed to remain open while adhering to SOP rules, we estimate operating capacity of MCO2.0 to be higher at 80% compared to MCO1.0’s 65% of GDP. For now, we maintain our 2021 GDP forecast at +6.0% YoY (2020f: -5.5% YoY), with downside risk bias.

Muted market impact. Overall the PERMAI stimulus seems to be largely targeted at both the rakyat and SMEs that have been hit by the negative ramifications of Covid19. From a market perspective, our sense is that the stimulus initiatives were largely reiterations of previously announced ones (e.g. from Budget 2021) with some having (i) timeline extension or fast tracked and (ii) expansion to their allocated sum; as such we expect muted market reaction. Maintain KLCI target at 1,780 based on 19.3x PE (+1SD reflecting an eventual vaccine led “recovery premium”) tagged to 2021 EPS. Top picks largely maintained, but we remove FocusP (TP hit) and replace with Inari.

Sectorial impact. Extension of the 10% electricity special discount to 6 industries will help alleviate some burden for aviation and REITs (mall + hotels). For Tenaga, the initiative is neutral as it will come from the EIF, while the rebate (2sen/kwh) is part of the usual ongoing ICPT mechanism. Initiatives related to BPN and wage subsidy 3.0 should help partially cushion the negative hit to the consumer sector during MCO2.0. Acceleration of Micro SME e-Commerce Campaign and Shop Malaysia Online campaign (RM300m) should bode well for courier logistics (substitution to online shopping) and players that facilitate online transactions (e.g. Revenue Group). For the private healthcare sector, while allowing them to treat Covid-19 patients presents a new revenue stream, this may come at the expense of “non-critical” treatments as people may now view hospitals as a “high risk” area.

Source: Hong Leong Investment Bank Research - 19 Jan 2021