Highlights

• The new Budget 2023 strikes us as prudent with proposed spending being mostly directed at absolute and immediate necessities, and high-impact initiatives that will help to secure the nation’s future. It focuses on the wellbeing of the rakyat and businesses (especially, the SMEs). It also cares deeply for the environment and paves the way towards carbon neutrality.

• Development expenditure has been raised to RM97b (vs. RM95b in Budget 2023 tabled back in Oct 2022). Correspondingly, the allocation for Sabah and Sarawak has also been tweaked up to RM6.5b and RM5.6b (vs. RM6.3b and RM5.4b previously), respectively. The MRT3 project is specifically mentioned (which is good news to contractors), although there is a plan to bring the cost down to below RM45b (vs. the current estimate of RM50b).

• The cash handouts to the B40 group and tax cuts for the M40 group will help mitigate the impact of high inflation. Sustained consumer spending will augur well for retailers under our coverage. Airport and airline operators are getting a shot in the arm via tourism promotion funded by RM250m allocation and RM115m matching grant.

• The Ministry of Health will get RM36b allocation, out of which RM4.9b is earmarked for medical supplies (that will benefit the local pharmaceutical industry, but not private hospitals).

• To promote entrepreneurship, the budget designates micro-lending allocation of RM1.7b towards micro SMEs and small vendors through Bank Negara, Bank Simpanan Nasional and TEKUN, and RM10b financing for SMEs.

• Automation and digitalisation of operations of SMEs will be accelerated via RM100mallocation as well as various funding schemes spearheaded by Bank Pembangunan Malaysia and Bank Negara Malaysia (BNM).

• BNM will also provide RM2b financing to support green technology start-ups and help SMEs implement low-carbon practices. Meanwhile, biodiversity conservation and preservation of wild life could count on certain specific allocations under the budget.

• To close the digital divide, RM725m has been allocated to implement digital connectivity at 47 industrial areas and 3,700 schools, while 5G coverage is targeted at 80% of population by 2023. This is positive to the telco industry.

• To encourage the switch to electric vehicles (EVs), the full exemption of import duty on component, excise duty, and sales tax for CKD units will be extended to Dec 2027 (from Dec 2025), while the full exemption of import and excise duty for CBU units will be extended to Dec 2025 (from Dec 2024).

• On the cybersecurity front, the budget proposes a “kill switch” policy by all banking institutions to enable immediate freezing of accounts (i.e. ATM cards) from the detection of suspicious activities.

• We maintain our end-2023 FBM KLCI target of 1,640 pts based on 15.5x CY23F earningsprojection (+12.2%). We continue to advocate investors to seek refuge in sectors with strong earnings resilience amidst rising external headwinds. These are banks, telcos, automakers/distributors, retailers and contractors. These sectors have also emerged clear winners of the new Budget 2023 which is highly supportive of domestic consumption.

Source: Kenanga Research - 25 Feb 2023