Highlights

• Budget 2024 turns out to be a less bitter pill for most. On one hand, it raises the sales and services tax to 8% (from 6%) and expands its scope, and introduces capital gains tax of 10% on the sale of unlisted shares and luxury goods tax of 5% to 10%. On the other hand, the subsidy rationalisation focuses on electricity and diesel, with no explicit mention of the RON95 petrol. Similarly, there is also no explicit mention of the much-talked-about progressive wage model other than “savings from reduced subsidy leakages could go towards funding higher wages for workers”.

• Allocation for Rahmah Cash Aid (STR) is raised to RM10b for 2024, from RM8b in 2023, which will benefit nine million recipients. Civil servants at grade 56 and below, including contractual appointments, will receive RM2,000 as initial incentive payment, while all key public sector posts, including the police, firefighters, soldiers, armed forces, uniformed members and government pensioners will get RM1,000.

• Gross development expenditure is projected at RM90b in Budget 2024 (vs. RM97b estimated for Budget 2023). The allocations for Sabah and Sarawak are at RM6.6b and RM5.8b respectively (vs. RM6.5b and RM5.6b a year ago).

• The Bayan Lepas LRT was not specifically mentioned in the budget speech. Instead, a future phase, i.e. Penang to Seberang Perai LRT was mentioned. However, we are unperturbed as a later phase could not possibly happen without the immediate phase, i.e. the Bayan Lepas LRT. Meanwhile, the RM45b MRT3 circle line project was also not brought up in the budget as it will be funded via SPV-funding (DanaInfra).

• There is a continual effort to support the nation’s SME space which leads to economic growth and job creation that bolster consumption. EV-centric initiatives will stimulate demand for vehicles while the relaxation of foreign home ownership conditions will help to ease supply overhang in the property sector.

• A high-tech industrial zone will be developed in the northern Kerian region of Perak, focusing on electrical and electronic (E&E) industries. A sum of RM6.8b has been allocated for TVET education. BNM will provide RM900m loan facilities to drive automation and digitalisation in SMEs.

• A target of 26.1m tourist arrivals has been set for Visit Malaysia Year 2026. A sum of RM350m has been allocated to promote tourism. Visa-On-Arrival and multiple-entry visas will entice tourists and investors, especially from India and China.

• The Ministry of Health will get RM41.2b allocation (vs. RM36.3b in 2023), out of which RM5.5b is earmarked for medical supplies that will benefit the pharmaceutical industry.

• Financial institutions will set aside RM200b facilities to help industries to transition to lowcarbon economy, putting the country on the right track towards achieving net zero by 2050. Similarly, we are positive on the expansion and extension of Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE).

• We maintain our end-2023 FBM KLCI target of 1,520 pts based on 16.5x our CY23F earnings projection (-4.0%). We project FBM KLCI earnings growth of 10.5% in CY24F. We continue to like banks (fiscal sustainability), contractors (the rollout of public projects), telcos and utilities (earnings defensiveness), and consumer staples and automakers/distributors of affordable vehicles (resilient B40 spending). These sectors have also emerged clear winners of Budget 2024.

• Our top conventional picks, top Shariah picks and top small-cap picks are reflected in Exhibits 1 to 3 on the next page.

Source: Kenanga Research - 14 Oct 2023