In the research report issued by Macquarie Research (MQ Research) last weekend, the second stimulus package announced by Malaysia government last Friday (27 Mar) brings the total stimulus to RM250bn. The government outlay of RM25bn raises budget deficit to an estimated 4.8% and debt to gross domestic product (GDP) to 57.5%. This measure aims to provide necessary support to most vulnerable part of the economy.

Event

• The Malaysian government has announced a RM250bn stimulus package with a RM25bn fiscal injection. The figure includes the previously announced measures, including the loan moratorium by banks valued at about RM100bn and RM40bn in withdrawals from the Employees Provident Fund (EPF), and a RM50bn loan guarantee. Cash injections to 80% of households, students, retirees, civil servants and wage subsidies to companies impacted by Covid19 will certainly go some ways to shoring up the populace until the movement control order (MCO) is lifted in mid-April. The government deficit is expected to rise to 4.8% and debt to GDP to 57.5% as a result of this stimulus.

Impact

• A helping hand. While the actual government injection is not large at RM25bn, it is targeted at the most vulnerable part of the population. The RM50bn loan guarantee scheme by Danajamin is a credit backstop, which ensures small medium enterprises (SMEs) are able to access financing and stay open, as are measures to delay tax, EPF payments, loan repayments etc. These ultimately mitigate the risk of structural job losses.

• Impact on listed corporates. Tenaga Nasional (TNB) has stated that it will foot RM150m of the RM530m electricity rate discount, with the rest coming from the Electricity Fund. Meanwhile, the impact of telcos providing bigger data quotas (1GB/day) should have marginal impact on earnings, while the RM400m capex spend is an acceleration of their 2020 capex budgets to cope with increased demand. Banks as previously reported are largely neutral from the moratorium.

• Impact on government financials. By MQ Research estimates, assuming 0% GDP growth in 2020, oil at US$40/bbl and additional RM10bn in dividends from key government entities including Petronas, Malaysia’s 2020 budget deficit will rise to 4.8%, with debt to GDP expanding to 57.5%. Given the unprecedented circumstances, MQ Research see this as a necessary evil. Additionally, S&P’s reaffirmation of Malaysia’s foreign and local ratings with a “Stable” outlook earlier today with downside risks if net general government debt rose above 60% and sustained deficits exceeding 4%, suggests that Malaysia is unlikely to face a downgrades on the back of this stimulus.

Outlook

• MQ Research continues to favour global plays such as glove producers (TOPG, HART), plantations (SDPL) and PCHEM. Improved Covid-19 newsflow should also lead to a rebound in MAHB. GAM and ECON are MQ Research’s top picks for increased infra activity. For those seeking bombed-out defensives, MQ Research likes MISC, TNB and PBK. MQ Research also likes CIMB and RHBBANK for a post-Covid environment but note near-term pressures from rate cuts and credit costs.

Source: Macquarie Research - 30 Mar 2020