The aptly named RM35b ‘Penjana’ delivered by PM Muhyiddin raises the value of stimulus measures so far to RM295b. Except for tax-related incentives to spur the moribund automotive and property sectors, and generous incentives to attract FDIs, a good number of other measures were to us, extensions of what have been announced before. These extensions are necessary given the numerous MCO extensions, and the realization that a recovery that may take longer than earlier expected. Overall, they were targeted at helping the masses with expanded wage subsidy, protecting jobs, providing more relief to businesses especially the SMEs and attracting foreign direct investments and digitization of businesses. With RM10b to be directly funded by the Federal budget, 2020 budget deficit is expected to widen to 6.5% of GDP compared to 5.6% previously. These measures are seen not so much a boost as they are a relief for the affected business sectors. No change to our year-end target for the FBMKLCI which remains at 1,406.
3 incentives to stimulate the Property Sector: (i) Exemption of stamp duty on residential property purchases: Home Ownership Campaign (HOC) is reintroduced where stamp duty exemptions will be given on instruments of transfer and loan agreements for properties priced between RM300k – RM2.5m for SPAs executed between 1 Jun 2020 – 31 May 2021 subject to the participating property developers giving a minimum 10% price discount. (ii) Lifting financing limit: Financing limit of 70% on housing loan for 3rd residential property onwards valued at RM600k and above will be uplifted during HOC. (iii) Exemption of RPGT for residential property: Gains from residential property disposals by Malaysians between 1 Jun 2020 and 31 Dec 2021 will be exempted from RPGT – given for up to 3 residential properties per individual.
Our comments: While these are seen positively as measures to lift property demand, we reckon it will not lead to a meaningful turnaround in the property sector’s weak fundamentals. Essentially, we do not foresee a pick-up in demand as sentiment will likely remain fragile amid the challenging economic outlook. On the other hand, the prevailing large property oversupply remains a key drag on the overall property market dynamics. In terms of stock recommendations,
SIMEPROP (OP; TP: RM0.88) and IOIPG (OP; TP: RM1.21) remain our sector top picks due to their depressed valuations.
Incentives for the Palm Oil Sector: 100% export duty is exempted for: (i) CPO, (ii) crude palm kernel oil and (iii) refined palm kernel oil for the period 1 Jul – 31 Dec 2020.
Our comments: Depending on the price of CPO, the export duties range between 0% - 8%. From Jan – May 2020, export duty on CPO ranged between 4.5 – 6.0%, while CPO export duty for Jun 2020 was lowered to 0%. The benefits of lower export prices in June (from 0% export duty) can be seen to some extent, in the export data. Based on data from cargo surveyor Intertek (1-5 Jun), Malaysia CPO exports have risen 148% MoM attributed to a combination of: (i) lower export duty and (ii) 200k MT palm oil purchase by India (shipment in June and July). Exemption of the duties for the rest of the year will keep export prices low and more competitive against Indonesia’s output. Note that Indonesia raised its CPO export levy for Jun 2020 to USD55/MT and we believe this should continue throughout the year to support its domestic biodiesel programme. Our top picks are HSPLANT (OP; TP: RM1.85) and TAANN (OP; TP: RM2.90).
Incentives for the Automotive Sector: (i) 100% sales tax exempted for locally assembled CKD units and (ii) 50% sales tax exemption for imported CBU cars. Effective 15 Jun to 31 Dec 2020.
Our comments: The sales tax for both CKDs and CBUs passenger vehicles is 10%. The effective sales tax for CKDs is on average, at 3% after factoring in the incentives under Industrial Linkage Programme (ILP) regulation. Based on our estimates, CKD prices will be reduced by 7-8%, while CBUs will be reduced by 3-4%. We are positive on this news as it should help move vehicles sales closer to our 2020 sales target of 420k units (-31% YoY). Nevertheless, we remain UNDERWEIGHT the sector given the still cautious consumer sentiment on high-value items amidst the economic slowdown and stringent hire purchase loan approvals.
Source: Kenanga Research - 9 Jun 2020
Created by kiasutrader | Aug 26, 2024