Last Friday, Prime Minister Muhyiddin Yassin announced an added RM35bn stimulus package, bringing the total value of packages to RM295bn. Macquarie Equities Research (MQ Research), in its report dated 5 Jun, said that the stimulus seems to be targeting the right segments – wage support, digital economy and foreign direct investments.

Read on for more details and for MQ Research’s top stock picks following the latest development.

Event

• Prime Minister Muhyiddin Yassin announced a further RM35bn in measures to help the Malaysian economy recover from the Covid-19 pandemic. This brings the total value of packages announced to RM295bn (20% of gross domestic product (GDP)), with a combined fiscal stimulus of RM45bn. This latest announcement will see the wage subsidy program extended, stamp duty on properties reduced, sales tax reductions on cars, and various incentives to stimulate digitalisation of the economy as well as tax incentives to draw foreign direct investment (FDI) to Malaysia.

Impact

• Doing the right things. The added stimulus seems to be (again) targeting the right groups to 1) limit the economic impact of the Covid pandemic; 2) reskill the economy for the new (digital) normal; and 3) encourage investments. MQ Research is particularly encouraged by the various initiatives to reskill workers and encourage a shift to the digital economy.

• Impact on the equity market. The obvious beneficiaries of the measures announced were the property and auto sectors. The actual financial impact, however, may be muted, given the weak consumer sentiment and the potential increase in unemployment levels in coming months; also it is likely to benefit the secondary market more. Banks, in MQ Research’s view, are indirect beneficiaries, as the extended wage subsidy and incentives for businesses should ease credit stresses – although uncertainty will prevail for 2020/21. Telcos, which will offer a focused 1GB/day free data offering for e-learning and work from home (WFH) services, should not be impacted significantly, given the need to be subscribed to a service to begin with. While the wage subsidies are positive for consumers, the impact on listed players may be muted. Reduced export taxes on crude palm oil (CPO) should help Malaysian CPO regain lost market share.

• Further increase in deficit and debt but not worrying. The added fiscal stimulus will take the government budget deficit up to an estimated 5.9%, based on MQ Research’s -3.1% GDP estimate for 2020 and assuming US$40/bbl oil, with RM20bn in added dividends from government entities. This will raise debt to GDP to 60%. Higher oil prices and increased upstreaming of cash from various government entities could alleviate this figure further.

Outlook

• MQ Research’s top picks list continues to favour global leaders/exporters (TOPG, IHH, PCHEM, SDPL), defensives (TNB, RANH, telcos), construction (GAM, ECON), recovery play (MAHB) and selective banks (CIMB, RHBBANK). For investors looking to play global trends on the opening-up economies MQ Research would also consider Genting Malaysia (GENM MK, RM2.58, Outperform, target price: RM3.20). While airlines have seen a bounce globally, MQ Research remains cautious on the balance sheet risks.

Source: Macquarie Research - 9 Jun 2020