Reducing Cost Of Living

• The last Budget before the 13^th GE likely focus on issue of rising living standards with a glimpse of GST details.
• Target growth likely to be circa 5-6% with self-imposed disciplines to prevent excessive spending.
• Focus areas on home affordability, assistance for lower-income group and higher tax relief for tax payers.
• Other measures: SMEs, tourism, sports, crime reduction, EEV, REIT withholding tax and sin tax (brewery). 
• Other outstanding issues for the steel, pail oil, automotive (including car price) and gas will be dealt out of Budget.
• Impact on the market likely neutral to slightly positive.
• Potential beneficiaries are DRB (EEV), REIT (withholding tax) and construction (development expenditure).
• “Goodies” will sustain consumption but not significant boost. Moreover, valuations of consumer stocks not compelling.
• Potential loser: brewery (although impact likely muted) and property (more competition and eliminate foreign buyers from certain segment).
• Budget play: DRB, REIT and Construction better choice but REIT one-off benefit while DRB will be longer term.
• Despite election risk, construction sector huge valuation discount suggests risk largely factored in.  New contracts will augment existing large order book and further enhance already high earnings visibility over next 2-3 years.  Hence, the sector could be the best proxy for this thematic play.
• This is also in line with our overall strategy of switching out from defensive to laggards like construction.

Source: Hong Leong Investment Bank Research - 7 Sept 2012