Monday, September 2, 2013

Addressing public finances (DBSV)

Market Focus
KLCI : 1,703.78
Addressing public finances
Upcoming measures to reduce fiscal deficit and improve current account position.
Reprioritisation of Government projects could result in potential delays for oil & gas projects.
Possible near-term headwinds for the property sector
Tenaga will benefit if a cost pass-through mechanism is introduced

Measures to improve finances. The Goods and Services Tax (GST) will likely be announced in the upcoming Budget that will be tabled in Parliament on 25 October 2013. Gradual cuts in subsidies are also likely, which will result in higher fuel and energy prices. Although these measures will contribute towards improving the fiscal deficit, it will also result in higher inflation. Weaker spending could hurt consumer players such as Padini (Hold) and Parkson (Hold). A cost pass-through mechanism will be positive for Tenaga (Buy).

Reprioritisation of projects. The Government is also looking to review the implementation of planned projects. Priority will be given to low import content and high multiplier projects.

Potential delays for oil & gas projects? Petronas' RAPID project has been delayed with commissioning in 2018 (from 2016 initially). Dialog (Hold) may be affected as its Pengerang
deepwater terminal phase 2 is meant to service the storage demand from RAPID clients. Other O&G upstream projects such as marginal fields, new exploration & production activities may slow down but to a lesser extent due to the importance of increasing oil production for Malaysia. This may be negative for MMHE (Fully Valued) and Wah Seong (Fully Valued). SapuraKencana (Buy)’s fabrication segment may be affected; however, current RM26bn order book provides strong visibility.

High multiplier effect from MRT. For construction, we believe MRT Lines 2 and 3 are high multiplier projects. In our view, lower multiplier contracts such as Tun Razak Exchange, Rubber Research Institute Malaysia (RRIM) and Warisan Merdeka could be rescheduled. For the high speed rail, there is no firm indication of implementation yet. Our top pick for exposure to the Klang Valley MRT remains Gamuda (Buy) while we also like MMC (Buy) as an alternative proxy.

More property measures. For property, RPGT may revert to the original 5-30% for disposal within 5 years (currently 15% for disposal within 2 years & 10% for 3-5 years). Minimum purchase price by foreigners may also be raised from RM500k to RM1m. While sentiments may be negatively affected, impact of RPGT hikes in the past has been short-lived. Developers susceptible to tightening measures will be those with: a) Large exposure to high-rise developments & investors: Mah Sing (Not Rated), Tropicana (NR), YTL Land (Buy); b) Developers with large percentage of foreign buyers: UEM Land (Hold).

Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 30/08/13

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