The Budget: SMEs. B40. Sabah & Sarawak. Youth & Employment. These are what stood out for us as major beneficiaries of Budget 2020 announced on Friday 11th Oct. Counter-cyclical, the mildly expansionary measures are to be funded by relaxing the earlier 3.0% budget deficit to 3.2% instead – an expense not beyond means but necessary in light of the current risks to growth. Emphasis on the Shared Prosperity Vision 2030’s three socio-economic agendas of: (i) narrowing the wealth gap; (ii) creating a high value economy; and (ii) making Malaysia a leading Asian economy ring clear in the measures that were announced.

No major sector loser: Raising the minimum wage from RM1,100 to RM1,200 apply only in major cities and would affect only low-skilled labour intensive businesses in cities. The reduction in number of special draws for NFOs from 11 to 8 per year has negligible impact on the bottom line. On the contrary, further measures to curb illegal gambling via higher minimum mandatory penalties of fines and jail terms for both illegal gamblers and operators should raise the legal NFOs’ market share.

Tech is a big winner: Firstly, matching grants offered to SMEs to digitise business operations are expected to accelerate installations of electronic Point of Sales (e-POS), electronic payroll and Enterprise Resource Planning (ERP) systems, all of which are within the domain of stocks such as GHL Systems (NR) and Revenue Group (NR). Secondly, a 10-year tax exemption to E&E companies investing in selected knowledge-based services and the extension of capital allowance for manufacturing and services sectors automation initiatives to the year of assessment 2023 encourage higher level of automation investments. This would benefit the likes of MPI (OP, TP: RM12.10), D&O (OP, TP: RM0.625) and KESM (OP, TP: RM8.70) - our favourites. And thirdly, a RM450m fund to encourage the take up of e-wallet would encourage greater transactions at electronic Point of Sales.

Consumer wins too: RM450m was set aside to fund identity verified e-wallet take up by Malaysians above 18 years old earning below RM100k annually. This scheme is effectively a RM30 per e-wallet giveaway to be redeemed between 1 Jan and 29 Feb 2020 which is expected to benefit 15m Malaysians. If successful, this would raise e-wallet penetration well beyond the current 8% estimated by Nielsen. Besides e-gateway service providers, beneficiaries of this initiative are convenience store operators, and prime in our list is MYNEWS (OP, TP: RM1.55). Others would be SEM (MP, TP: RM1.35) and QL (UP, TP: RM6.30) (via Family Mart). Consumption is helped by increased allocation for subsidies and social assistance from RM22.3b in 2019 to RM24.2b. Here, the BSH (Bantuan Sara Hidup) scheme that benefits 3.9m households will be allocated RM5bn and expanded to cover 1.1m low income single individuals above the age of 40. Topping this are increased monthly COLA of RM50 (amounting to additional allocation of RM350m) for support group and special payments to members of armed forces, police and fire rescue as well as government retirees before year-end. RM1.1b was also allocated to the Ministry of Tourism, Arts & Culture to promote the VMY2020 campaign. We see this benefitting CARLSBG (OP, TP: RM28.70) and HEINEKEN (MP, TP: RM24.25). Other beneficiaries include MAHB (MP, TP: RM8.70) and AIRASIA (MP, TP: RM1.70)

Source: Kenanga Research - 14 Oct 2019