• A comprehensive and inclusive budget targeting all walks of life. Budget 2018 generally focuses on addressing current high cost of living especially among the B40 (the bottom 40% lowincome group households) and improving the welfare of the people particularly the low-and-middle income group. As expected, this year’s Budget is touted as ‘pre-election’ Budget with concentration on aiding the B40 and M40 (the 40% middle-income group) households, with continued cash handouts, i.e. BR1M, special payments for civil servants, personal income tax cut for M40, widening the lists of GST exemption items on selected goods & services, building of more affordable homes, grants, incentives, financing and assistance to Felda settlers, farmers, fishermen, small estate owners, rural folks, small-scale businesses, SMEs and certain sub-sector groups such as women, indigenous people, students, and retirees. As usual, the Budget also emphasis on rural electrification, water supply and public amenities and transportation in East Malaysia and Peninsular. Besides, it also ensures the nation’s economy continues to grow by reaffirming a few infrastructure development projects which were announced before and currently being undertaken such as ECRL, Pan Borneo Highway, KL-Singapore HSR, and few highways in Klang Valley and East Coast.

• Higher government spending attributable to rising operating expenditure. Under Budget 2018, total government expenditure is at RM280.2b, which is higher than market expectation of RM270-275b, and 7.4% higher than RM260.8b allocated for 2017. As usual, majority of the spending will be channelled into operating expenditure costs totalling RM234.2b, up 9.0% from RM214.8b in 2017. Meanwhile, development expenditure remains unchanged at RM46b, which is the same as last year.

• Commitment on fiscal consolidation to ease market concern. On the back of anticipated rising government revenue particularly from the collection of corporate income tax and GST as well as better-than-expected oil revenue (as current crude oil price is higher than projected price of USD45/barrel), the government is confident in its initial budget deficit target of –3.0% this year and envisages it to further improve to –2.8% in 2018. This is inline to avoid any sovereign ratings downgrade and hence outflow of foreign funds from the local capital market.

• Resilient economic growth in tandem with improving global outlook. The government envisages 2017 and 2018’s GDP to grow at 5.2-5.7% and 5.0-5.5% respectively, which we deem realistic and achievable as growth figures are slightly above our in-house forecast of 5.1% for 2017 and 4.9% for 2018. To recap, Malaysia achieved a robust growth of 5.7% in 1H17, driven mainly by domestic consumption and export. The economic growth for next year will continue to be underpinned by private consumption and investment, as well as external demand.

• Budget 2018 is Rakyat friendly but fairly muted to the capital market. The Budget is fairly within market expectation. We deem that this year’s budget is a non-event budget, emphasising more on addressing socio-economic issues as not many profound sector-specific measures being proposed. For the property industry, we are neutral on the sector as measures introduced are mainly addressing supply side of the equation, i.e. more government initiated affordable housing projects but without addressing demand side issues especially lack of sufficient incentives or assistances for the first home buyers. Also, we are neutral to slight positive to consumer sector with all kinds of aids to boost disposal income of the people. However, we do not expect significant sales surge for consumer stocks amid rising cost of living and stagnant income growth. For the construction sector, there is no ‘new’ or ‘mega’ property and infrastructure projects being introduced which could spring ‘positive surprises’ to the sector. Disappointingly, the government did not spell out more detailed measures or incentives to boost the digital economy in the country besides promising to develop the DFTZ in KLIA.

Source: JF Apex Securities Research - 30 Oct 2017