PM Muhyiddin delivered the second stimulus package that aims to relieve the financial hardship of those badly affected by Covid-19. This stimulus draws on the resources beyond just the government, involving the banks, utilities, telcos and insurers and also retirement savings. At 17% of GDP, the headline package value of RM250b appears staggering. But the direct fiscal funding of RM25b, although at just 10% of the headline figure, is estimated to widen the budget deficit from our current estimate of 4.3% to 6.0% of GDP. It is also politically appealing as it reaches out to a large section of society in the form of handouts for both B40 as well as M40, assisting them to meet daily sustenance. The biggest beneficiaries are those in the consumer and retail sectors. Favoured picks are F&N (OP; TP: RM35.20), PADINI (OP; RM2.40), PWROOT (OP; RM2.65) and QL (OP; TP: RM8.30).

RM250b – a massive ‘support’ package: Covid-19 has unleashed an impact that is so far reaching that almost everyone is affected. Hence, the need to provide a massive support of as much as 17% of GDP to address issues ranging from ensuring the soundness of the banking system down to the plight of the person in the street. Of the RM250b, nearly RM128b is channelled for social welfare, RM100b is to support businesses that include SMEs, RM2b to strengthen the nation’s economy and RM20b which was the first stimulus package delivered on 27th Feb. Among the large items that are not funded directly by the Federal budget are as follows:

Support for consumption by allowing drawing from retirement funds involving over RM50b: On top of the 4% reduction in employees EPF contribution announced under the first stimulus (involving up to RM10b), the PM announced a further RM500 maximum monthly withdrawals from Account 2 (at the option of members). Both these initiatives could release up to RM50bn into pockets of consumer. PRS members may also withdraw up to RM1,500 from Account B without penalty.

Support for borrowers especially SMEs and individuals and safeguard the banking system involving at least RM100b: On the 25th March. Bank Negara Malaysia implemented measures to assist financially-challenged borrowers and to maintain the soundness of the banking system. These involve introduction of 6-month moratoriums, easing provision standards temporarily, convert credit card balances into 3-month term loans and relaxation of regulatory buffers and reserves. No tax will apply on accrued interest income under moratorium until the loan servicing resumes. We deem these as necessary pre-emptive measures that can avert a potential crisis inflicted by a temporary pandemic. The PM alluded that this initiative involves at least RM100b.

Government to provide credit guarantee scheme totalling RM50b: This facility guarantees up to 80% of the loan to fund working capital. This scheme will be administered by Danajamin which will also conduct the credit assessment.

Support for employers facing cash-flow issues to delay, reschedule and restructure their EPF contributions involving an estimate RM10b: This initiative is expected to benefit over 480,000 SMEs and potentially saves 8m jobs.

Bank Negara to set aside RM4.5b to assist SMEs: This is implemented through (i) funding the Special Relief Facility (RM3b) to enlarge the Facility to RM5b, and interest rate lowered from 3.75% to 3.5%; (ii) additional RM0.5b to Micro Credit Scheme which is administered by BSN, and (iii) increase the size of funding to SMEs by another RM1b.

Source: Kenanga Research - 30 Mar 2020