Yesterday, PM Muhyiddin announced the PEMERKASA+ stimulus of RM40bn. Direct fiscal injection is at RM5bn (0.3% of GDP). With lower GDP stemming from the total lockdown, 2021 deficit target of 6.0% may be missed, giving rise to credit rating downgrade risk. We reckon the market is unlikely to be excited by this stimulus as it dwarfs in comparison to last year’s PRIHATIN (RM250bn). Maintain KLCI target at 1,660 (16.5x PE on 2021 EPS).

NEWSBREAK

Yesterday, Prime Minister Tan Sri Muhyiddin Yassin announced an additional stimulus (called PEMERKASA+) in response to the total lockdown which begins today. The PEMERKASA+ stimulus package totals RM40bn, of which RM5bn is via direct fiscal injection.

HLIB’s VIEW

Near term deficit woes. The direct fiscal injection of RM5bn (0.3% of GDP) may possibly come under the Covid-19 Fund. We reckon the funding for this could be redirected from other non-critical spending to maintain the earlier fiscal deficit target of 6.0% of GDP (PM did not clarify how this will be financed). However, with the total lockdown imposed from 1-14 June posing downside risk to official forecast of 6.0- 7.5% of GDP (HLIB forecast: 4.6%), this could lead to a higher fiscal deficit ratio (estimated at 6.0-6.3%). While this fiscal injection would provide some respite to businesses (e.g. 1 month Wage Subsidy Program) and consumers (e.g. BPR top up), should there be a wider fiscal deficit target, this may cause downside risk to S&P’s decision on Malaysia’s credit rating, expected by end-Jun (now on negative outlook).

Unlikely to get the market excited. The RM40bn PEMERKASA+ is larger than most of the other previous “Covid-19 stimulus” (ranging RM15-25bn), but dwarfs in comparison to the mammoth PRIHATIN (RM250bn; March 2020). As such, we reckon this is unlikely to excite the market on a broad basis. However there are pockets of initiatives impacting specific sectors:

• Extending previous targeted loan assistance arrangements for the B40 and micro-SMEs. However this time around, it will also be offered to SMEs that are not allowed to operate during the total lockdown. Our banking analyst expects minimal impact to the banks. Firstly, this is just an extension and he notes that the 30 June 2020 targeted assistance did little to no damage to earnings and instead help ed to limit significant deterioration in asset quality. Secondly, banks are already offering R&R services to troubled SMEs.
• Electricity bill discount of 10%. Offered to hotels, tour agencies, shopping malls, convention centres, theme parks and airlines from July-Sept 2021. This is a continuation of an existing initiative and will help give some breathing space to REITs (malls, hotels) and aviation.
• Home Ownership Campaign (HOC). Extended to 31 Dec (supposed to end yesterday), good for developers.
• Auto SST exemption/ reduction. Extended to 31 Dec (supposed to end 30 June). Positive for autos and should help them regain lost ground during the total lockdown.

Maintain KLCI target at 1,660. Pending our post 1Q21 results round up, we maintain our 2021 KLCI earnings growth of 23.9% and top picks. Our end-2021 KLCI target of 1,660 is based on 16.5x PE (-0.5SD to 5Y mean) tagged to 2021 EPS.

Source: Hong Leong Investment Bank Research - 1 Jun 2021