The Budget 2021 announced last Friday saw significant handouts and support measure to mitigate Covid-19 pain. Macquarie Equities Research (MQ Research) opined that gross domestic product (GDP) support measures are positive in general but has limited impact on large cap companies.

Event

• As expected the Budget 2021 was big in trying to mitigate the impact of Covid-19 on the general public. Increased cash handouts, increased wage subsidies and retraining allowances were key features of the Budget. The total government budget worth RM326.5bn is 2.6% larger than 2020’s. The increased spend does mean that the budget deficit will remain elevated in 2021 at 5.4% vs 6% in 2020, and that the debt to GDP ratio will remain elevated at 61%; it was in MQ Research’s view the right thing to do in light of the negative impact of the Covid-19 pandemic. Also as expected, while infrastructure projects were spoken about, they are unlikely to spur a rerating in the sector, as little was new.

Impact

• Handouts and incentives where they are needed. Cash handouts under the new Bantuan Prihatin Rakyat (BPR) have been increased across the board from the old BSH program benefiting 8.1m households vs 4.3m under the old program. Withdrawals from the employees provident fund (EPF) and lower employee contributions also help. Loan moratoriums (opt in) for B40 and micro small and medium sized enterprises (SME) with loans up to RM150k were announced while M40 households will have easier processes to moratoriums – both from December. Overall, these measure will, in MQ Research’s view, blunt the Covid-19 and CMCO impact on the general economy.
• Deficit to persist, debt to GDP to remain elevated. The measures will leave the budget deficit elevated in 2021 (5.4%) with debt to GDP of 60.7%. MQ Research does note that these are based on 21E nominal GDP growth of 8.9% (real GDP +6.8%). Even if GDP growth lagged and the debt to GDP figure creeps up, leading to a credit downgrade, it should have limited impact on overall bond yields, considering ratings and borrowing costs of ASEAN peers.
• Impact on listed companies. Free data worth RM1.5bn announced should have minimal impact on the telcos considering RM1.5bn credit from the government for communication services. Digitalisation including e-commerce was also a beneficiary. Glove manufacturers (TOPG, SUCB, KRI, HART) collective contribution of RM400m towards the Covid fight should be seen as a positive outcome vs a previously speculated windfall tax. The targeted loan moratoriums (opt in) for B40/M40 is a positive outcome vs fears of a blanket B40 moratorium. Increased measures to control tobacco smuggling is positive for BAT, albeit tempered by higher excise duties on heatsticks (<15% of volume). A number of infrastructure projects appeared to have been reiterated, with nothing major announced as expected. Similarly in the property sector.

Outlook

• MQ Research remains constructive on the Malaysian market into 2021. Budget 2021 has mitigated the negative impact of the ongoing movement restrictions on the economy and should pave the way for a post-Covid recovery.

Source: Macquarie Research - 10 Nov 2020