Yesterday, Prime Minister Muhyiddin Yassin announced the RM15bn Permai stimulus package, which is aimed at mitigating the impact of the latest MCO 2.0. As Covid-19 vaccines are due to be administered from late February, Macquarie Equities Research (MQ Research) continues to favour recovery plays.

Event

• Prime Minister (PM) Muhyiddin Yassin announced yesterday afternoon the RM15bn Permai stimulus package aimed at mitigating the impact of the latest movement control order (MCO) 2.0. With a number of measures already announced during Budget 2021, the added fiscal stimulus is c.RM5bn. RM4.1bn of new handouts, wage subsidies and others will ease the pain of consumers. Corporate contributions are unlikely to have a material impact on earnings, while banks were spared from a worst-case blanket loan moratorium. With vaccines due to be administered from late February, MQ Research continues to favour recovery plays.

Impact

• Budget deficit and debt to gross domestic product (GDP) to expand. By MQ Research’s estimates, the new measures announced will add 0.3ppt to its previous budget deficit and debt-to-GDP estimates, bringing them to 6.4% and 63.9%, respectively. The RM15bn headline figure for the Permai stimulus package includes RM3bn for Covid vaccines, RM2.4bn in brought forward Bantuan Prihatin Nasional payments, and RM1bn in previously announced Danajmin guarantees.
• Corporate impact muted. The 2sen/kWh electricity rebate was part of the normal Indirect Cost Pass Through mechanism announced in December, while the 1GB free data by the telcos has been in effect and is similar to the program in 2020 – muting revenue growth marginally. Government linked companies (GLC) / government linked investment companies (GLIC) collectively will fund a RM25m disaster relief program. RM1bn in wage subsidies, meanwhile, should be positive for small and medium enterprises (SME).
• Banks get some relief. The government’s incremental fiscal stimulus lowers the risk of further overnight policy rate (OPR) cuts, in MQ Research’s view. MQ Research estimates RM4.1bn incremental cash transfer to businesses and individuals will prove to be more targeted and effective relief vs OPR cuts. In addition, the RM1bn microcredit facilities (RM390 Bank Simpanan Nasional, RM350m Agrobank and RM295m from Tekun) will also provide micro/SME’s with additional liquidity support.
• Consumers and autos benefit. The added cash in consumers’ hands should provide some support to the consumer sector. The extension of the Sales and Service Tax (SST) moratorium for vehicles will be supportive of auto sales.
• iSinar risk? According to the PM, RM24bn worth of applications for withdrawal from Employees Provident Fund (EPF) had been approved. Assuming (a very conservative) zero monthly net inflows into EPF (pre-Covid +RM2bn per month) and a 3% target liquid asset holding, this could lead to up to RM17bn in asset disposals by the EPF over six months, although this would already have begun in 4Q20.

Outlook

• MQ Research continues to prefer recovery plays, exporters and digital economy exposure amongst its top picks. MQ Research removes Gamuda on delayed infra spend.

Source: Macquarie Research - 19 Jan 2021