Neu­tral to mild im­pact on the eq­uity mar­ket

An­a­lysts: Sev­eral sec­tors will gain from Bud­get 2018

The Star Malaysia - StarBiz - - News -

PE­TAL­ING JAYA: Bud­get 2018 is ex­pected to have a neu­tral to mildly pos­i­tive im­pact on the over­all lo­cal eq­uity mar­ket.

But an­a­lysts said sev­eral sec­tors, in­clud­ing con­struc­tion, con­sumer, re­tail, au­to­mo­tive, aviation, hos­pi­tal­ity, bank­ing and prop­erty, were key ben­e­fi­cia­ries from the bud­get next year.

Ac­cord­ing to Af­fin Hwang Cap­i­tal Re­search with the bud­get’s em­pha­sis on im­prov­ing dis­pos­able in­come, the con­sumer sec­tor would be pos­i­tively im­pacted.

“From an eq­uity stand, we do not ex­pect Bud­get 2018 to fully ex­cite the mar­ket, although it does pro­vide suf­fi­cient driv­ers to lift con­sump­tion spend­ing, man­u­fac­tur­ing cap­i­tal ex­pen­di­ture and con­tin­ued con­struc­tion ac­tiv­ity,” the bro­ker­age said in its re­port.

Af­fin Hwang Cap­i­tal Re­search noted that con­struc­tion would re­main a key fo­cus given the var­i­ous de­vel­op­ment projects, even though the lower-than-ex­pected de­vel­op­ment ex­pen­di­ture of RM46­bil un­der Bud­get 2018 was a neg­a­tive sur­prise.

In ad­di­tion, it said the bud­get was ex­pected to have some pos­i­tive im­pli­ca­tions on the lo­cal fi­nance sec­tor, thanks to the stamp duty ex­emp­tion for trad­ing of ex­change-traded funds and struc­tured war­rants.

Af­fin Hwang Cap­i­tal Re­search main­tained its “over­weight” rat­ing on lo­cal stock mar­ket, with an end2017 tar­get of 1,813 for the FBM KLCI based on 17.7 times es­ti­mated earn­ings for the year.

It based its pos­i­tive out­look on a firm gross do­mes­tic prod­uct (GDP) growth, ac­com­pa­nied by a syn­chro­nised global re­cov­ery, the ex­pected ap­pre­ci­a­tion of the ring­git and un­de­mand­ing val­u­a­tions.

Mean­while, Al­liance Re­search opined that im­prove­ment in cor­po­rate earn­ings would be a more im­por­tant el­e­ment to jus­tify a re-rat­ing of the over­all eq­uity mar­ket.

“While Bud­get 2018 is likely to boost con­sumer sen­ti­ment, the di­rect im­pact on Malaysian eq­ui­ties is largely neu­tral in the near term as we be­lieve cor­po­rate earn­ings need to im­prove fur­ther to sup­port any re-rat­ing.

“We would need to mon­i­tor the spillover ef­fect of a con­sump­tion re­cov­ery on the wider econ­omy,” the bro­ker­age said.

Among sec­tors that would war­rant at­ten­tion, ac­cord­ing to Al­liance Re­search, are bank­ing (for signs of loan growth pick-up), prop­erty and au­to­mo­tive (for signs of de­mand re­cov­ery).

“Go­ing into 2018, we be­lieve the key themes for Malaysian eq­uity are con­sump­tion re­cov­ery, ro­bust ex­ports, and trans­port-re­lated in­fras­truc­ture.

“How­ever, as these themes be­come more crowded, es­pe­cially ex­ports and in­fras­truc­ture, ex­e­cu­tion by cor­po­rates to de­liver tan­gi­ble earn­ings ac­cre­tion is im­por­tant to sup­port fur­ther re-rat­ing given that val­u­a­tions are no longer cheap,” it ex­plained.

Al­liance Re­search re­it­er­ated its ex­pec­ta­tion that the FBM KLCI would hit 1,870 by end-2018, im­ply­ing 16.5 times price-earn­ings.

Sim­i­larly, Hong Leong In­vest­ment Bank Re­search (HLIB) is mildly pos­i­tive on the bud­get, cit­ing the Govern­ment’s com­mit­ment to main­tain eco­nomic re­silience by rais­ing dis­pos­able in­come and pro­mot­ing in­vest­ments; and the wide-rang­ing mea­sures to ben­e­fit the broader econ­omy.

“The pos­i­tive spillover of do­mes­tic sec­tors is ex­pected to sus­tain eco­nomic mo­men­tum, and hence is in­cre­men­tally pos­i­tive for cor­po­rate earn­ings,” HLIB said.

The bro­ker­age said the ben­e­fi­ciary sec­tors would be au­to­mo­tive, thanks to mea­sures to en­cour­age car own­er­ship, aviation on tourism mea­sures, con­struc­tion on sus­tained de­vel­op­ment ex­pen­di­ture and in­fras­truc­ture projects, con­sumer on in­come tax cut and ed­u­ca­tion on higher al­lo­ca­tion.

HLIB ex­pected the FBM KLCI to move slightly higher to­wards the end of the year on de­cent do­mes­tic data amid strong ten­dency of yearend rally.

It main­tained its end-2017 FBM KLCI tar­get at 1,760 based on 16 times 2018 earn­ings.

Separately, CIMB Re­search opined that there were no losers un­der Bud­get 2018.

“We view the Bud­get 2018 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,” the bro­ker­age ex­plained.

On its list of ben­e­fi­cia­ries, CIMB Re­search said be­sides con­struc­tion be­ing a big win­ner, the prop­erty mar­ket would ben­e­fit from ini­tia­tives to push for more af­ford­able hous­ing projects, while the health­care sec­tor would ben­e­fit from in­creased al­lo­ca­tion and other in­cen­tives.

It also ex­pected the aviation, ho­tel, food and bev­er­age, shop­ping mall and trans­porta­tion in­dus­tries to ben­e­fit from the Govern­ment’s ini­tia­tives to boost tourism in Malaysia.

CIMB Re­search main­tained its end-2017 FBM KLCI tar­get at 1,790, and set its end-2018 tar­get at 1,920. Both tar­gets were based on 16 times price-earn­ing.

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