It said the key surprise was the reduction in personal income tax. This and special payments to civil servants should boost consumption spending.
“Sector winners are construction, property, consumer, F&B and healthcare,” it said.
It maintained its end-2017 KLCI target of 1,790 (based on forward price-to-earnings of 16 times).
“Using the same P/E multiple but rolling forward our valuations, we arrive at an end-2018 KLCI target of 1,920.
“We continue to favour construction, utilities and small-caps, and our top three picks are Tenaga, Gamuda and Axiata,” it said.
CIMB Research said the biggest surprise in the 2018 Budget was the reduction in personal income tax.
The income tax rates for individuals with taxable incomes of between RM20,000 and RM70,000 per annum will be lowered by two percentage points. This will raise the disposable income of the individuals by RM300 to RM1,000 per annum.
“We expect this, along with the special payment of RM1,500 to be given to all civil servants and RM750 to government retirees, to lift consumption spending in Malaysia, which will benefit the retail, consumer, retail-based REITs and F&B
sectors,” it said.
CIMB Research said the construction sector was a big winner. The total value of construction projects listed under Budget 2018 is RM210bil, which is significantly higher than the RM99bil in Budget 2017.
The other positive is that the government targets to complete MRT 3 in 2025, two years earlier than the original target of 2027.
“Potential beneficiaries in the construction space include Gamuda, IJM Corp, WCT Holdings, Sunway Berhad and YTL Corp,” it said.
The research house said the highlights said that the extending end-financing scheme to private developers.
The government announced more affordable housing projects to address the problem of insufficient affordable housing and to improve home ownership.
On top of this, the special end-financing scheme for PR1MA buyers has now been extended to private developers as well, with the aim of helping first-time home buyers to obtain loans.
“We believe this and the income tax rate cut will boost sales in the affordable housing segment and benefit developers such as Mah Sing, LBS Bina and SP Setia,” it said.
The other winners include the healthcare sector which benefitted from a 7.1% increase in healthcare budget, which we expect will benefit pharmaceutical players like Pharmaniaga.
There were other incentives as well to promote medical tourism which should benefit healthcare operators like IHH and KPJ Healthcare.
“We also believe that aviation, hotel, F&B, shopping mall and transportation industries will benefit from the government’s initiatives to boost tourism in Malaysia,” it said.
To recap, CIMB Research viewed the 2018 Budget as mildly positive for the market. The personal income tax cuts and special payments to civil servants should boost consumption and benefit consumer companies.
Contractors should gain from the increase in the value of construction projects. Meanwhile, brewery, tobacco and gaming sectors did not see an increase in taxes.
“We believe no sectors are worse off after the budget,” it added.
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