Yesterday, PM Muhyiddin announced the PEMULIH stimulus totalling RM150bn (RM10bn via direct fiscal injection, 0.7% of GDP). No mention of how this would be financed but there remains c.RM100bn undisbursed funds from Budget 2021. For now, we opine fiscal deficit could chalk -6.2%. Overall, the stimulus offers aid to a rather broad coverage (BKC for B40 and M40, wider wage subsidy, iCitra EPF withdrawal, “opt-in” loan moratorium and electricity discounts). This relatively sizable stimulus (only 2 nd to last year’s PRIHATIN) may offer some near-term market reprieve. Maintain 2021 KLCI target at 1,660 and GDP at +4.0%.

NEWSBREAK

Yesterday, Prime Minister Tan Sri Muhyiddin Yassin announced an additional stimulus (PEMULIH) totalling RM150bn, of which RM10bn is via direct fiscal injection.

HLIB’s VIEW

GDP impact. Overall, the stimulus offers much needed aid to a rather broad coverage: (i) cash handouts for the B40 and M40 via the a newly introduced Bantuan Khas Covid-19 (RM4.6bn), (ii) wider wage subsidy (RM3.8bn; no more RM4k salary cap) for businesses, (iii) another EPF withdrawal scheme (i-Citra: RM30bn), (iv) “optin” loan moratorium for all individuals and micro-SMEs and (v) 5-40% electricity bill discounts for households. These measures are aimed at easing cash flow burden to mitigate the impact of lost income during FMCO. Nevertheless, as Covid-19 continues to negatively affect the economy with uncertainty on its persistency, we maintain our GDP forecast at 4.0% YoY and opine BNM will maintain the OPR at 1.75% as MPC looks further into the forecast horizon on improved growth prospects along with faster vaccination progress.

Fiscal deficit impact. Total headline stimulus was RM150bn (9.9% of GDP), but new fiscal injection amounts to RM10bn (0.7% of GDP), possibly under Covid-19 Fund. We estimate that significant portion of the RM10bn will be cash handouts. PM did not clarify how it will be financed but said there remains undisbursed funds to the tune of RM100bn from Budget 2021 that has yet to be spent. While the government could opt to issue new bonds to cover the additional PEMULIH financing of RM10bn, we reckon that they will attempt to redirect the financing from other operating/development expenditures to try to maintain the fiscal target. Nevertheless, with a weaker GDP expectation, we opine fiscal deficit could register -6.2% of GDP, using our lower GDP assumption of 4.0% vs official forecast of 6.0-7.5% YoY.

May offer near term reprieve. To recap, most of the “Covid stimuli” announced subsequent to the mammoth RM250bn PRIHATIN (Mar 2020) were relatively smaller in nature (RM15-40bn). At a headline sum of RM150bn, we regard the PEMULIH stimulus to be a rather sizable one, which may offer some near term reprieve to the market that has been hit by the FMCO Phase 1 extension (supposed to end yesterday) and stubbornly elevated Covid cases. Nevertheless, we believe higher vaccination rate (which has been increasing exponentially) remains key to a sustainable reopening recovery. We expect slight market recovery in July once the NRP transitions to Phase 2 and a more meaningful one in Sept-Oct upon going to Phase 3. Maintain KLCI target at 1,660 (16.5x PE on 2021 EPS).

Sectorial impact. The vaccination drive for businesses (under PIKAS) which accords (i) tax deductions and (ii) consideration to operate at full capacity if all staff are vaccinated is good for manufacturing related sectors (auto, building materials, EMS, furniture, gloves and tech) which have been constantly hit by clusters. For the loan moratorium, our banking analyst doesn’t expect any significant impact to banks as (i) “opt-in” model may deter non-affected borrowers from exploiting and (ii) troubled borrowers would remain largely similar to before and thus, we do not expect to see a meaningful uptick in targeted assistance as a % of outstanding loan exposure. On the electricity bill discounts (5-40% for households and 10% for tourism related areas), our utilities analyst reckons this shouldn’t impact Tenaga as it is expected to be borne by the government thru the KWIE fund.

Source: Hong Leong Investment Bank Research - 29 Jun 2021