Yesterday, the government unveiled another RM10bn stimulus package for small and medium-sized enterprises (SMEs), bringing the total value of packages announced to RM260bn. While this should ease the SMEs to weather the storm during the pandemic, Macquarie Equities Research (MQ Research) remains constructive on the Malaysian market although it estimated that the budget deficit would rise to 5.5%.

Event

• The Prime Minister announced an added RM10bn package aimed at SMEs to mitigate the pain from Covid-19 and the mandatory control order. This brings the total value of packages announced to RM260bn with a fiscal contribution of up to RM35bn. Most importantly in MQ Research’s view, this latest package lends a helping hand to the 1m SMEs in the country with a gross domestic product (GDP) contribution of 38% (2018) and employ 66% of the workforce. This added package should mitigate the negative impact from the Covid-19 pandemic somewhat.

Impact

• Wage subsidy expanded. RM7.9bn of the latest package will go towards wage support for local employees earning RM4k and below. The wage subsidy rises to as much as RM1,200/month for companies with less than 75 employees. The government will also allow companies to negotiate wages with employees during this period to ease the pain from the MCO. Companies which take the wage subsidy however are not allowed to lay off these workers for a period of 6 months.

• Micro credit lines help. As pointed out by the president of the SME Association of Malaysia, on a call MQ Research hosted on 3 April, the biggest issue for micro SMEs (70% of the total SMEs) is getting access to bank loans due to limited documentation. The RM2.1bn allocated by the government towards micro loans (<RM3k) will go some ways in aiding these micro SMEs and mitigate the economic impact post-Covid from layoffs etc.

• Where’s the money coming from? No mention was made as to where the government was sourcing funds for this added stimulus. However, MQ Research believes that in addition to a reallocation of resources from other projects/uses as per Budget 2020 (tabled in October 2019), the government may tap Petronas and other Government Linked Companies (GLCs). Assuming 0% GDP growth, US$30/bbl oil and the total stimulus outlay of RM35bn, MQ Research estimates the budget deficit would rise to 5.5% without added cashflows from these entities. Petronas’ cash pile stood at RM83bn as at end 2019 and was projected to contribute RM24bn in dividends in 2020 under the Budget 2020.

Outlook

MQ Research remains constructive on the Malaysian market. Valuations at 1.2x price-to-book are below global financial crisis levels (1.4x) and MQ Research sees value in the banks (CIMB, RHBBANK, PBK) and defensive such as Tenaga. Exporters i.e. gloves (TOPG, HART), PCHEM and Sime Plantations also stand out. MQ Research would look to accumulate Gamuda and ECON for the pick-up in infra activity post Covid. Malaysia Airports meanwhile is a play on a return in travel post-Covid with the added likelihood of an improved regulatory framework providing valuation upside in the medium term.

Source: Macquarie Research - 7 Apr 2020