Bursa optimistic on Budget 2019

It was a pleasant surprise and no news means good news, an analyst says

By DASHVEENJIT KAUR / Pic By TMR

Budget 2019 was a mildly expansionary budget and has beat expectations of “austerity”.

Having heard an hour of the budget presentation, investors on Bursa Malaysia reacted positively to the Budget 2019 announcement by raising 6.95 points to close at 1,713 and analysts reckon the positive momentum will continue into this shortened trading week.

Rakuten Trade Sdn Bhd research VP Vincent Lau told The Malaysian Reserve that the budget was “not as bad” as people expected.

“It was a pleasant surprise and no news means good news. The feared new taxes did not materialise,” Lau said last Friday.

He said the budget turned out to be responsible and people-centric. So, following this, which stocks could see possible gains or experience setbacks?

Casino Tax

Genting Bhd reflected an immediate decrease following the government’s announcement to raise the annual casino licence fee from RM120 million to RM150 million. The casino tax will be increased to 35% of the gross income.

Licences for dealer machines will be increased from RM10,000 to RM50,000 every year, while duties on gaming machines will be increased to 30% from 20% on gross collection.

Investors response was swift with Genting falling 2.7% or 20 sen to RM7.20.

Analysts believe further downside is possible as the announcement was only made public near market close.

Other gaming counters which do not operate a casino went up with Magnum Bhd rising 3.3% or six sen to RM1.88, while Berjaya Sports Toto Bhd rose 6.28% or 13 sen to RM2.20.

Magnum and Berjaya Sports Toto operate within the sub industry of number forecast operators and are highly unlikely to be affected by the new tax initiatives.

Soda Tax

Meanwhile, a soda tax will see an excise duty of 40 sen per litre on sugary drinks, including fruit and vegetable juices.

This will be on beverages that contain sugar exceeding 5g per 100ml, as well as juices that contain more than 12g per 100ml, and is set to be imposed starting April 2019.

“Stocks like Spritzer Bhd, Nestlé (M) Bhd and Power Root Bhd will see little or less impact compared to Fraser & Neave Holdings Bhd (F&N) in the long run,” Lau said.

Moreover, a soda tax will see an excise duty of 40 sen per litre on sugary drinks (Pic: TMRpic)

He reckons the cost of the tax will be passed on to consumers or companies would reduce the sugar content.

Nestlé rose 0.1% last Friday to RM143.60. Being the most expensive stock on Bursa Malaysia in terms of absolute value, Nestlé has returned 41% this year and a gain of 67% in the past 52 weeks.

F&N advanced 1.9% as of last Friday, the biggest move since July 9, more than quadruple the country’s benchmark index. F&N closed at RM34.

In May, F&N stated it would focus on upsizing its product offerings (ie instead of 24 cans, F&N will offer 28 cans to consumers at the same price), rather than handing out discounts.

This came after its first half of the financial year 2019 results showed sales were flat year-on-year (YoY), while operating profit fell 17.2% YoY due to pricing pressures.

Pretax earnings were impacted by higher production and input costs, mostly stemming from milk powder, sugar and packaging costs (ie tin and resin costs).

Factoring all the above, the tax on sweetened beverages may leave an impact to F&N’s beverage division.

Duty-Free Status for Pangkor Island

The announcement to make Pangkor a duty-free island is anticipated to boost the small island’s tourism industry.

According to Maybank Investment Bank Research, the duty-free status may benefit YTL Hospitality Real Estate Investment Trust (YTL REIT) and Atlan Holdings Bhd.

YTL REIT owns Pangkor Laut Resort, while Atlan prsently has outlets in Pangkor Island.

Affordable Homes

Budget 2019 also paid emphasis to the affordable housing issue. The government has announced an allocation of RM1 billion to help those earning RM2,300 or less a month to own their first home.

The fund will be set up by Bank Negara Malaysia (BNM) to help those keen on purchasing affordable homes priced up to RM150,000.

First-time home buyers who are purchasing properties worth up to RM500,000 will receive a stamp duty exemption up to the first RM300,000 on transfer instruments and loan agreements for two years until December 2020.

For first-time homebuyers with a household income of up to RM5,000 a month, the government will allocate RM25 million to Cagamas Bhd to provide a mortgage guarantee to enable such borrowers to obtain higher financing, including deposit fees.

The govt has announced an allocation of RM1b to help those earning RM2,300 or less a month to own their 1st home (Pic by Muhd Amin Naharul/TMR)

Such a measure is expected to cost between 7% and 11% for homebuyers, aside from any discounts offered by the developer.

An industry analyst said affordable housing developers such as Hua Yang Bhd, SP Setia Bhd and Mah Sing Group Bhd can benefit from such a move.

“It seems likely that more Malaysians will be able to afford a house at key areas and developers offering affordable housing will be more known by the public now on,” the analyst said.

SP Setia is one of the developers under the Rumah Selangorku programme which offers affordable housing in Selangor.

Its current project is based in Setia Alam and comprises 737 apartment units called the De Kiara and 730 units at its De Palma apartment with built-ups of 800 sq ft and priced at RM170,000 each.

Moreover, the company has 723 units with a built-up of 900 sq ft at its De Bayu apartment priced at RM200,000.

The developer also has Setia Eco Templer, with 900 affordable housing units priced up to RM250,000.

Another developer under the Rumah Selangorku project is Mah Sing, which is offering gated affordable housing in Rawang.

Currently with 488 units, the Cendana Apartment homes have a built-up area of 850 sq ft each with a starting price of RM170,000.

Its future projects in the affordable housing space will focus in other states such as Penang and Johor.

Mah Sing has plans to launch M Centura in Sentul, Kuala Lumpur (KL), which boasts high quality affordable housing with a price tag of RM328,000.

This is slightly higher than the affordable housing meant for KL residents, but the developer justifies the price tag by promising quality.

BNM has established a RM1 billion fund to help homebuyers from the lower income group nationwide to finance the purchase of their first home.

The fund will be available for two years from Jan 1, 2019, or until the RM1 billion fund is fully utilised.

Eligible homebuyers could obtain financing (conventional or Islamic) at a concessionary rate at participating financial institutions.