Impact POSITIVE

Measures

• Reduction of personal income tax from 21% to 19% for those earning between RM50k-RM100k (RM4.2k RM8.3k/month), largely the M40 segment.

• Reduction of income tax from 17% to 15% for the first RM100k earned by micro SMEs

• Discounts to PTPTN borrowers from Nov 2022 to Apr 2023 amounting to: (i) 20% for full settlements; and (ii) 15% for settlements above 50% or which scheduled direct debit payments.

• Stamp duty exemption of up to 75% for housing transactions valued between RM500k-RM1.0m.

• RM10b in loan funds allocated to SMEs for automation and digitisation and support for food security and tourism.

• RM3b in loan funds (up to 2025) allocated for Green Technology Financing Scheme (GTFS).

• RM73m investment into CyberSecurity Malaysia as well as the establishment of the National Scam Response Center (NSRC) to strengthen the monitoring, detection and reporting of cyber threats and cyber forensic capabilities, to better guard the financial systems.

Comments

• We are positive on the tax reductions as it would provide some relief to its targeted segments with better cash flows to meet their financial commitments, translating to better asset quality security for the banks.

• Similarly, the aid to PTPTN borrowers would lessen financial strains to allow for better repayability of other borrowings.

• Lower stamp duty charges could also support the demand for housing loans amidst anticipated softening from higher OPR expectations.

• Financial aid to SMEs could also help propel their recovery from the lull experienced during Covid-19 countermeasures.

• Meanwhile, the GTFS is favourable to the growing targets of banks in building larger green financing books.

• The establishment of the NSRC is timely with the rise of incidences of financial scams and security breaches which has affected confidence in the banking system. The new investments could possibly yield stronger financial security integrity and safeguards to reduce financial system loss and damage going forward.

Beneficiaries

• The measures above are expected to benefit the industry as a whole. Given the lapse of repayment assistance programs, asset quality concerns are more skewed towards the lower income groups as well as SMEs which might just be returning to the economy. Hence, providing support to these groups would ultimately support the health of the financial system.

• Top picks are MAYBANK (OP; TP: RM11.05) for its leading dividend yields (7-8%), CIMB (OP; TP: RM6.35) for its defensive regional NOII performance, and ABMB (OP; TP: RM4.20) for its portfolio concentration in SMEs and optimal fixed rate financing and CASA ratios.

• We maintain OVERWEIGHT with our stock coverage and target prices unchanged.

Source: Kenanga Research - 8 Oct 2022