Yesterday, the PM announced the RM20bn PEMERKASA stimulus comprising 20 initiatives. With some buffer from higher oil price, fiscal deficit could widen to -5.8% from the original estimate of -5.4% (2020: 6.0%). Maintain our 2021 GDP estimate at 5.0% for now. The higher vaccine allocation (RM3bn to RM5bn) and commitment to avoid another blanket MCO augurs well for our recovery thesis in 2021. Maintain KLCI target at 1,740.

NEWSBREAK

Yesterday, the Prime Minister announced a RM20bn stimulus (“PEMERKASA”), comprising 20 initiatives to drive economic growth, support businesses and provide continued targeted assistance to those impacted by the pandemic.

HLIB’s VIEW

Fiscal deficit could widen. Total headline stimulus was RM20bn, but new fiscal injection amounts to RM11bn (0.7% of GDP), possibly under Covid-19 Fund. PM did not clarify how it will be financed. Nevertheless, there is some upside from revenue estimates due to higher oil prices compared to the assumed USD42/brl in Budget 2021. Assuming oil price averages USD60/brl (YTD: USD60.70/brl), this would increase revenue by RM5.4bn, leaving budget deficit possibly higher at -5.8% of GDP, compared to MOF’s original estimate of -5.4% (2020: -6.0%). While this fiscal injection would provide some respite to businesses and consumers, the widening of fiscal deficit could cause downside risk to S&P’s decision on Malaysia’s credit rating, expected by end-Jun 2021. Currently it has Malaysia on a negative outlook.

Maintain 2021 GDP forecast at +5.0%. On 1 Mar, the FM said that the reopening of more economic sectors under the second phase of MCO2.0 has reduced the country’s losses to RM0.3bn/day compared to RM0.7bn/day in the earlier phase, and RM2.4bn/ day during MCO1.0. Going forward, the PM also stated that the country would not impose any blanket MCO restrictions, but will instead focus on clusters and localities. Nevertheless, we maintain our 2021 GDP at 5.0% YoY. MOF has maintained its GDP forecast at 6.5-7.5% while BNM said they would review the official forecast during its Annual Report on 24 Mar.

Supporting the recovery thesis. From a market perspective, we reckon that the headline stimulus sum of RM20bn is unlikely to cause much excitement (relatively small vs the mammoth RM250bn PRIHATIN last year). Nonetheless, we are upbeat on the vaccination allocation increase (RM3bn to RM5bn) to speed up achieving heard immunity from 1Q22 to end-2021. Coupled with the commitment to avoid another blanket MCO, this augurs well with our consensus aligned recovery thesis. With Covid cases subsiding since late-Jan alongside vaccination rollout gaining traction (registrations jumped 4-folds from end-Feb, encompassing 23.7% of immunisation target), we believe the recovery theme will continue to play out. Maintain KLCI target at 1,740 (17.3x PE on 2021 EPS).

Sectorial impact. Introduction of tax deductions for companies that pay for employees’ Covid-19 tests should offer some aid to manufacturers (gloves, EMS, furniture, etc.), construction and plantation. For tourism related initiatives (e.g. exemption of tourism tax and SST, individual tax deductions for tours and 10% electricity bill discount), this should help out hotels (REITs), Genting and aviation. The extension of listing fee waiver/ rebates offered by Bursa is a slight negative to its earnings but we note that the key driver remains ADV which remains robust (YTD: RM5.3bn vs 2020: RM4.2bn).

Source: Hong Leong Investment Bank Research - 24 Mar 2021