Budget 2021 has something for everyone but ‘spread too thin’, says Affin Hwang

Budget 2021 has something for everyone but ‘spread too thin’, says Affin Hwang
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KUALA LUMPUR (Nov 10): The recently tabled Budget 2021 was "supersized but spread too thin", said Affin Hwang Capital Research, noting that the measures announced were not sufficient to assist the sectors that are badly hit by the Covid-19 pandemic.

It said there were relatively few measures to address issues faced by the tourism-related industry, namely airlines, airports, hotels, retailers and related services, which employs nearly a third of the working population and therefore could be a near-term concern.

“While the provision allows such EPF contributors to draw down their pension funds from their main Account 1, we think that this is a short-term measure that could eventually return to haunt, considering that most savers already do not have sufficient funds in this account for retirement,” wrote the research house in a note dated Nov 7.

It added that the targeted loan repayment assistance may also provide some short-term relief.

Overall, however, Affin Hwang said the budget has not prompted it to make any changes to its market projections, with the research house retaining its year-end FBM KLCI target of 1,650 points, largely underpinned by rubber glove stocks.

However, it said the outlook for earnings recovery and valuations “lack excitement”.

From an equity perspective, however, the research house noted several positive surprises, including the lack of a speculated windfall tax for the rubber glove sector.

Instead, the big four players — Top Glove Corp Bhd, Supermax Corp Bhd, Hartalega Holdings Bhd, and Kossan Rubber Industries Bhd — will contribute RM400 million to the government for the procurement of a Covid-19 vaccine and medical equipment.

“The estimated impact to net profit for the respective companies is a mere 3%-5%, which we believe is marginal, and hence likely to spur a sector rally in our view, post this major overhang,” said Affin Hwang.

Meanwhile, the higher development expenditure of RM69 billion should augur well for the construction and infrastructure sector, although the sector may fail to outperform amid the political uncertainty and prospects of an election going into 2021.

The telecommunications sector is also set to benefit from a RM1.5 billion aid to the B40 segment to ensure access to broadband, which should help preserve average revenue per user (ARPU) for the cellular operators.

The Malaysian Communications and Multimedia Commission has also been allocated RM7.4 billion to build and enhance broadband services over 2021 to 2022, it noted.

For the sin sector, the research house was encouraged by the fact that no further taxes were imposed and welcomed the measures introduced to tackle the illicit cigarette market, especially as the legitimate market share has shrunk to approximately 30%.

Affin Hwang has "overweight" ratings for the rubber products, auto and autoparts, building materials, and utilities segments.

Lam Jian Wyn