SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Market update 1 October 2012 PP16832/01/2013 (031128) Malaysia Budget 2013 One For The People Market-neutral. As anticipated, Budget 2013 focused on sustaining domestic demand as it continues to deliver a number of “goodies” to the people to help them weather the rising cost of living, with focus, too, on affordable housing. There is no change to our forecasts for KLCI core earnings growth of 11.9% in 2012 and 9.8% in 2013. Our stock and sector calls are also retained. We expect external volatility to persist and reiterate our defensive call on the broader market, with selective Overweights on oil & gas, construction, telco, gaming and power. No sin tax hikes, but a surprise 5-ppt RPGT hike. As expected, there were no hikes in taxes for the tobacco, brewery and gaming sectors. This should be a fillip for the depressed share price of Genting Malaysia, one of our top gaming BUYs. We remain Underweight on the tobacco, Neutral on the brewery and Overweight on the gaming sectors. The negative surprise was however a 5-ppt hike in RPGT for property holdings of less than five years, despite slowing demand. While generally negative for the property sector, we believe this is largely priced in, and maintain our Neutral call on the developers. Oil & gas: Incentivising downstream development. Our reading of the Budget speech is that service providers in the refining, storage and trading development chain at PETRONAS‟ RAPID, oil and gas storage terminal in Johor, regasification plant in Melaka, and oil and gas terminal in Sipitang, Sabah, would all qualify for the new 10-year 100% Investment Tax Allowance. If we are right on this, then Dialog, Petronas Gas, Gas Malaysia and Petronas Chemicals will be key beneficiaries, as the incentive will accelerate their return on the heavy capex to be incurred to support Malaysia‟s downstream oil & gas developments. Joyous moment for the masses; but sugar subsidy cut. Retail players under our coverage like AEON and Padini are the prime beneficiaries of the bonuses for civil servants, reduced individual income tax and tax reliefs, absence of GST, and other “goodies” resulting in higher disposable income. We are Neutral on the consumer sector, with selective BUYs on Padini and QL Resources. Meanwhile, a lower sugar subsidy of 20sen/kg should be passed on; we expect only a temporary shave in volume sales of MSM and Tradewinds. Construction: No new names. The government‟s gross development allocation for 2013 will be shaved 4.2% YoY to MYR47.8b. Construction of major infrastructure and real estate projects such as the Gemas-Johor Baru double track rail, West Coast Expressway, Tun Razak Exchange and Sg Buloh Malaysia Rubber Land are targeted to start in 2013. There was no mention of the KVMRT 2 and 3 lines; we take that to mean that the implementation is still some time away. We expect the two new lines to be given the government‟s go-ahead only from mid-2013, with job tendering to start, the earliest, by end-2013. Neutral(unchanged) Current KLCI: 1,637 (28 Sep 2012) YE KLCI target: 1,620 (unchanged) Wong Chew Hann [email protected](03) 2297 8686 Table of Content Page Budget 2013: One For The People 1 Capital Market: Several Steps Forward 3 Consumer/Gaming: Something to Cheer About 5 Construction/Building Materials: No New Name 7 Oil & Gas/Petrochemicals: Incentivising Downstream Developments 9 Plantation: Nothing Unsual 10 Property & REIT: Another Blow 11 Telecommunications: In Business We Trust 13 Other Highlights of Budget 2013 15 Top Picks Stock Name Ticker Shr Price @ 28 Sep TP Public Bank PBK MK 14.38 16.00 Hong Leong Bank HLBK MK 13.40 15.30 Telekom T MK 6.19 6.61 Genting Malaysia GENM MK 3.50 4.05 SapuraKencana SAKP MK 2.32 2.68 Bumi Armada BAB MK 3.69 4.88 KLCC Prop KLCC MK 5.82 6.38 Top Glove TOPG MK 4.90 6.00 Source: Maybank KE
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SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
17 October 2011
PP16832/01/2012 (029059)
Market update 1 October 2012
PP16832/01/2013 (031128)
Page 1 of 2
Malaysia
Budget 2013 One For The People
Market-neutral. As anticipated, Budget 2013 focused on sustaining
domestic demand as it continues to deliver a number of “goodies” to the
people to help them weather the rising cost of living, with focus, too, on
affordable housing. There is no change to our forecasts for KLCI core
earnings growth of 11.9% in 2012 and 9.8% in 2013. Our stock and
sector calls are also retained. We expect external volatility to persist
and reiterate our defensive call on the broader market, with selective
Overweights on oil & gas, construction, telco, gaming and power.
No sin tax hikes, but a surprise 5-ppt RPGT hike. As expected, there
were no hikes in taxes for the tobacco, brewery and gaming sectors.
This should be a fillip for the depressed share price of Genting
Malaysia, one of our top gaming BUYs. We remain Underweight on the
tobacco, Neutral on the brewery and Overweight on the gaming
sectors. The negative surprise was however a 5-ppt hike in RPGT for
property holdings of less than five years, despite slowing demand.
While generally negative for the property sector, we believe this is
largely priced in, and maintain our Neutral call on the developers.
Oil & gas: Incentivising downstream development. Our reading of
the Budget speech is that service providers in the refining, storage and
trading development chain at PETRONAS‟ RAPID, oil and gas storage
terminal in Johor, regasification plant in Melaka, and oil and gas
terminal in Sipitang, Sabah, would all qualify for the new 10-year 100%
Investment Tax Allowance. If we are right on this, then Dialog, Petronas
Gas, Gas Malaysia and Petronas Chemicals will be key beneficiaries,
as the incentive will accelerate their return on the heavy capex to be
incurred to support Malaysia‟s downstream oil & gas developments.
Joyous moment for the masses; but sugar subsidy cut. Retail
players under our coverage like AEON and Padini are the prime
beneficiaries of the bonuses for civil servants, reduced individual
income tax and tax reliefs, absence of GST, and other “goodies”
resulting in higher disposable income. We are Neutral on the consumer
sector, with selective BUYs on Padini and QL Resources. Meanwhile, a
lower sugar subsidy of 20sen/kg should be passed on; we expect only a
temporary shave in volume sales of MSM and Tradewinds.
Construction: No new names. The government‟s gross development
allocation for 2013 will be shaved 4.2% YoY to MYR47.8b.
Construction of major infrastructure and real estate projects such as the
Gemas-Johor Baru double track rail, West Coast Expressway, Tun
Razak Exchange and Sg Buloh Malaysia Rubber Land are targeted to
start in 2013. There was no mention of the KVMRT 2 and 3 lines; we
take that to mean that the implementation is still some time away. We
expect the two new lines to be given the government‟s go-ahead only
from mid-2013, with job tendering to start, the earliest, by end-2013.
Neutral(unchanged)
Current KLCI: 1,637 (28 Sep 2012) YE KLCI target: 1,620 (unchanged)
focus on affordable homes priced from MYR350,000 onwards whilst
Mah Sing will introduce more affordable products (SoVo and lifestyle
suites priced from MYR208,000 onwards) in its upcoming Southville
project in Bangi. We also expect to see an increasing supply of
small/shoe-box units (450-750sq.ft.) in the future. Beneficiaries include
developers with more involvements in affordable housing – Glomac,
Hua Yang (Not Rated), LBS (Not Rated) and KSL (Not Rated).
Property: Maintain Neutral, but target prices lowered. We expect
investors‟ sentiment on property stocks to stay weak given demand
hold-backs: 1) by the upcoming 13th general election, and 2) amid a
weak global economic outlook and stricter mortgage lending by the
banks. We now apply higher discounts of 20-45% (+5%) (15-40%
previously) to RNAVs as we price in these risks. We prefer defensive
asset owners like KLCC Property and REITs over the developers.
REIT: Status quo. As we had anticipated, the current 10% withholding
tax (expiring end-2016) is unchanged. We remain comfortable about M-
REITs for their defensive qualities and solid fundamentals. Yields have
however compressed to 6.9% (average; 6.2% net), vs. 3.52% for 10-
year MGS. We maintain a Neutral stance on the M-REIT sector.
SunREIT offers a higher yield of 5.4% (4.9% net) vs. its retail peers‟
4.9% (4.4% net). Surprises could come from yield-accretive acquisitions
(medical centre/ colleges) in the near-term.
Review of RPGT under Budget 2013
Year Prior to 1 Apr 07 (citizen/foreign) (%)
1 Apr 07 - 31 Dec 09 (citizen/foreign) (%)
Effective 1 Jan 10 (citizen/foreign) (%)
Effective 1 Jan 2012 (citizen/foreign) (%)
Effective 1 Jan 2013 (citizen/foreign) (%)
1st 30/30 0/0 5/5 10/10 15/15
2nd 30/30 0/0 5/5 10/10 15/15
3rd 20/30 0/0 5/5 5/5 10/10
4th 15/30 0/0 5/5 5/5 10/10
5th 5/30 0/0 5/5 5/5 10/10
from 6th onward
0/5 0/0 0/0 0/0 0/0
i) RPGT exemption on gains from the disposal of one unit of residential property once in a lifetime by an individual who is a citizen or a permanent resident of Malaysia
ii) RPGT exemption on gains from disposal of property between parents and children, husband and wife, grandparents and grandchildren
iii) RPGT is charged only on net gains after deducting all related costs such as purchase price, renovation costs and incidental costs e.g. legal
fees and stamp duty
iv) Exemption up to RM10,000 or 10% of the net gains, whichever is higher, is given to an individual.
Source: Budget 2013
Changes in our target price and ratings for the property developers
Before After
Company RM Rec. RM Rec. Remarks
Glomac 1.10 BUY 1.00 BUY Raise discount from 40% to 45% (+5%); small cap and low trading volume
as well as perceived political risk KLCCP 6.38 BUY 6.38 BUY No change; potential REIT-ing of its world class assets will unlock its deep
valuations. Mah Sing 2.38 HOLD 2.21 HOLD Raise discount from 30% to 35% (+5%); perceived political risk and
significant contributions from its Rawang and Bangi township developments are expected from 2013 onwards only
SP Setia 4.00 HOLD 3.77 HOLD Raise discount from 15% to 20% (+5%); perceived political risk and low
trading volume given low free float of 10%. We expect the placement of 322.6m new shares to dilute our TP by 3%
Sunway 2.62 BUY 2.45 HOLD Raise discount from 40% to 45% (+5%); perceived political risk and
slowdown in demand for high-end properties UEML 2.05 HOLD 1.86 HOLD Raise discount from 40% to 45% (+5%); perceived political risk and it may
miss its MYR3b sales target (vs. our sales forecasts of MYR2.48b) for FY12
due to potential delays in launching its MYR1b Aurora Tower and MK22 given the slowdown in demand for high-end/ high rise properties;
Source: Maybank KE
1 October 2012 Page 13 of 20
Market Update: Budget 2013 17 October 2011
Page 1 of 2
Property sector: Comparative valuations
Price EPS (sen) PE (x) EPS Growth (%) G. Yld (%) P/B (x)
Infrastructure MYR6.0b allocation under Private Financing Initiatives for various projects, among them; include refurbishment and maintenance of schools and health clinics; housing projects; water tank projects; flood mitigation plans and provision of sports facilities.
Allocation of MYR1.9b to build 123,000 affordable housing units in strategic locations in 2013. The initiative will be implemented by PR1MA, Syarikat Perumahan Nasional Berhad (SPNB) and Jabatan Perumahan Negara.
Felda will build new generation housing projects amounting to 20,000 units for a period of five years on 5,000 acres of land in Felda areas. The project will cost a sum of MYR1.5b. In addition, Felda will allocate MYR60m to revive traditional village houses in the Felda areas. Felda will also spend MYR100m a year for education and skills training programme as well as scholarships for 5,000 new generation children from which 30% or 2,000 people are children outside the Felda scheme.
MYR300m to provide education grants and financial assistance to build rumah arau for pre-school students in the interior of Sarawak, 1Malaysia Mobile Clinic and repair houses for the poor and needy.
Additional MYR1b to Special Fund for Building, Improvement, and Maintenance of Schools
MYR200m under Urban Transformation Programme for refurbishing existing vacant government buildings into Urban Transformation Centre to provide public and private services.
MYR500m for beautification of Klang River - River of life.
MYR300m for replacement of water pipelines and sewage system.
Rural development MYR1.2b to build a road network of 441 km.
MYR1.6b for water supply to 24,000 houses and electricity supply to 19,000 houses.
MYR137m to finance Program Desa Lestari involving 29 villages nationwide.
MYR88m to implement economic development programmes and water supply projects for the Orang Asli community and MYR100m to supply 40,000 water tanks for rainwater harvesting.
Consumer-related The minimum pension is increased from MYR720 to MYR820 for pensioners who have served for at least 25 years. This will involve 50,371 pensioners and cost MYR60m a year.
All military personnel totaling 125,708 will receive a special incentive of MYR200 a month and cost MYR301m.
Military reserve personnel will have a higher service allowance, for officers; to MYR7.80 from MYR5.80, for ordinary members to MYR6.00 from MYR4.00, this will involve 65,000 members.
A one-off MYR1,000 for armed forces members who opted for early retirement, served less than 21 years and did not receive pension. This will involve 224,000 members and cost MYR224m
1AZAM to provide opportunities for generate income for the low-income group involving 58,330 people and costing MYR400m.
Extension of BR1M 2.0 to include single unmarried individuals aged 21 and above and earning not more than MYR2,000 a month.
Allocation of MYR386m to ensure the prices of essential goods in Sabah and Sarawak as well as in Labuan is sold at lower prices through the opening of 57 KR1M outlets.
Individual income tax rate be reduced by 1 percentage point for each grouped annual income tax exceeding MYR2,500 to MYR50,000. The measure will remove 170,000 taxpayers from paying tax. Cooperative income tax rate be reduced between 1 to 7 percentage points on income tax groups. With this, 7 million cooperative members will enjoy this benefit
Schooling assistance of MYR100 to all primary and secondary school students amounting to MYR540m.
Increase book vouchers value for pre-university and university students to MYR250 from MYR200, costing MYR325m
Allocation of MYR1.5b to stabilise the prices of cooking oil in the market.
Source: 2013 Budget Speech
1 October 2012 Page 16 of 20
Market Update: Budget 2013 17 October 2011
Page 1 of 2
Other Highlights of Budget 2013 (continued)
Key measures
Education MYR500m to enhance teaching skills in core subjects through the Higher Order Thinking Skills approach.
MYR1.2b to be allocated to spur pre-school education through grant and tax incentives to pre-school operators.
The government will launch the Graduate Employability Blueprint by end-2012 to assist unemployed graduates.
Skills Development Fund Corporation of MYR440m to offer loans for trainees to undergo skills training.
MYR600m for 5 research universities to conduct research on strategic fields which have commercial potential.
Tax relief for children‟s higher education increased to MYR6,000 per person from MYR4,000.
Tax relief for savings in National Education Savings Scheme increased to MYR6,000 from MYR3,000.
Discounts between 10-20% will be provided to facilitate PTPTN loan repayment.
SME development MYR1b is provided under the SME Development Scheme managed by SME Bank to accelerate growth and expansion of SME.
Fund for Green Technology Financing Scheme (GTFS) which provides loans and subsidies to producers and users of green technology will be increased by MYR2b.
Others MYR358m allocated as development expenditure in conjunction with Visit Malaysia Year 2013/2014.
3 years extension on tax exemption for qualified tour operators
For school bus operators, MYR10,000 cash rebate and 2% interest rate subsidy on full loans for purchases of new buses to replace old busses (> 25 years)
Allocation of MYR591m to reduce crime rate through increasing number of police personnel and MYR20m to buy 1,000 motorcycles.
MYR20m for additional 70 new 1Malaysia clinics in 2013.
APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES
DISCLAIMERS
This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate and that each security‟s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from the relevant jurisdiction‟s stock exchange in the equity analysis. Accordingly, investors‟ returns may be less than the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may rec eive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.
The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad, its subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness of this report by MKE and it should not be relied upon as such. Accordingly, MKE and its officers, directors, associates, connected parties and/or employees (collectively, “Representatives”) shall not be liable for any direct, indirect or consequential losses or damages that may ar ise from the use or reliance of this report. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice.
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Malaysia
Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis.
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The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. Maybank Kim Eng Securities (Thailand) Public Company Limited (“MBKET”) does not confirm nor certify the accuracy of such survey result.
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This document is being distributed by Maybank Kim Eng Securities (London) Ltd (“Maybank KESL”) which is authorized and regulated, by the Financial Services Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers.
1 October 2012 Page 19 of 20
Market Update: Budget 2013 17 October 2011
Page 1 of 2
DISCLOSURES
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report.
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OTHERS
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Maybank Kim Eng Research uses the following rating system:
BUY Total return is expected to be above 10% in the next 12 months (excluding dividends)
HOLD Total return is expected to be between -10% to +10% in the next 12 months (excluding dividends)
SELL Total return is expected to be below -10% in the next 12 months (excluding dividends)
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as we do not actively follow developments in these companies.
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