Yesterday, the government announced a new petrol subsidy scheme for those eligible under the Bantuan Sara Hidup (BSH), effective 1 Jan 2020. This new scheme allows the government to save about RM2.4bn per annum (0.15% of GDP). In a report dated 7 October, Macquarie Equities Research (MQ Research) discussed the impact of this new scheme and the outlook on the upcoming Budget announcement this Friday.

Conclusion

• The Malaysian government has announced its new petrol subsidy programme.

Impact

• Savings of RM2.4bn per annum (pa) or 0.16% of gross domestic product (GDP). The revised programme will see petrol subsidies given only to the B40 segment (2.9m recipients), who are eligible for the BSH payments, and with subsidies for retail RON95 petrol being lifted gradually from 1 Jan 2020 for all others. This new programme will save the government c.RM2.4bn pa equivalent to 0.16% of GDP (based on prices of 5-11 Oct), which should then be redistributed to other areas of the economy.

• Narrower recipient base. The removal of subsidies to 82% of car owners and 68% of motorcycles will be negative for consumer sentiment in the near term, but increased spend by the government in other areas should neutralise this, in MQ Research’s view.

• Near-term negative. At a stock level, there is a short-term negative impact to Petronas Dagangan on lower volumes (1% retail volume = 0.5% earnings), albeit neutralised by improved cashflows from lower subsidy receivables. Consumer discretionary volumes could also take a hit in the short term. Businesses in general are likely to see marginal cost increases albeit insignificant.

• Reallocation of subsidies should be positive. MQ Research expects the savings from the subsidy rejig, being spent on increased healthcare, education and rural development in the upcoming Budget 2020 (11 Oct 2019). The Shared Prosperity Vision 2030, released over the weekend, has identified Social Wellbeing and Regional Inclusion as two of its seven thrusts. Any spend here should in MQ Research’s view have a greater multiplier impact on the overall economy.

Outlook

MQ Research expects the upcoming Budget announcement to see increased focus on improving living standards of lower income households, which should be positive for consumer staples in particular. Reallocation of resources to greater investment should also be simulative of the general economy in MQ Research’s view.

MQ Research expects announcements around other large nameplate projects such as the East-Coast Railway Link, Penang Transport Master Plan and Mass Rapid Transport 3 to spur interest in the construction sector as well.

Source: Macquarie Research - 8 Oct 2019