Highlighted Companies
Genting Malaysia ADD, TP RM3.30, RM2.75 close
We see a potential rebound in Genting Malaysia’s (GENM) core net profit to RM436m in FY22F (FY21: – M968m) and further recovery in FY23F/24F (postCovid-19) as re-rating catalysts. Resorts World New York City may also win a New York downstate full casino licence, possibly in early-2023F; this could enhance GENM’s equity fair value by 44- 51 sen/share.
Mr D.I.Y. Group (M) Bhd ADD, TP RM2.71, RM1.97 close
MR DIY (MDGM) is a likely beneficiary of the down-trading trend due to rising inflationary pressures. We expect MDGM’s growth to be driven by new store openings (across three of its store brands), more profitable sales mix and higher SSSG. As at end-2Q22, MDGM owned and operated 993 stores across all
retail formats.
RHB Bank Bhd ADD, TP RM7.46, RM5.56 close
We regard RHB as the biggest beneficiary of the overnight policy rate (OPR) hike among the large Malaysian banks. Its CY22F dividend yield of 5.3% is also one of the highest in the sector. Current
valuation is attractive at CY23F P/E of 6.8x vs. the sector’s 10.5x.
Budget 2023 preview: Expect muted impact
- We expect Budget 2023 to be neutral for the KLCI, and potential beneficiaries are the consumer, construction, property and tourism-related sectors.
- In the past 13 years, KLCI posted returns of 0.5% one week before budget tabling. However, we found that the pre-budget rally typically does not last.
- In the past 13 years, the probability of KLCI delivering positive returns one day and one week post budget tabling was 38-46% vs. 69-85% pre-budget.
Budget 2023 likely to be neutral for KLCI
The upcoming Budget 2023 is set to be tabled on 7 Oct (next Friday). There is high anticipation that the government will dish out more goodies than usual to create a “feel good” effect as it will be its last Budget before the 15th General Election (GE15). However, we are of the view that the feel-good outcome is likely to be negated by rising concerns over a global recession, potential implementation of fuel subsidy reform, and uncertainties over the outcome of GE15. There are also concerns that Budget 2023 may need to be tabled in the Dewan Rakyat again if the Bill has not been approved when Parliament is dissolved to make way for GE15. Such an incident only happened once before in 1999 – Budget 2000 was tabled on 29 Oct 1999, after which Parliament was dissolved on 11 Nov 1999 and GE10 was held on 29 Nov 1999. A fresh Budget similar to the one tabled in Oct 1999 was re-tabled on 25 Feb 2000. We found that over the past 13 years, the KLCI tended to rally one week before the Budget day (probability of 69%), providing an average return of 0.5%. However, profit-taking sets in after the event, with an average negative return of 0.2% one day post-Budget day over the past 13 years (see Figs 3-9).
Our expectation for Budget 2023
We project a prudent 2023F fiscal deficit of 4.3% of GDP, balancing the need to rebuild fiscal resilience, GE15 and the risk of a global slowdown. The government’s pre-budget statement indicated the possibility of a minimum effective tax rate of 15% for multinational corporations alongside measures to move to e-invoicing to tackle tax evasion. The Goods and Services Tax (GST) is the elephant in the room, unlikely to be discussed as the election drums bang louder. On spending, we see reductions via the RM23bn in savings compared to 2022 Budget from the expiry of the Covid-19 Temporary Measures Act and potential lower subsidy commitment amid softer commodity prices as well as the potential implementation of a targeted fuel subsidy scheme. Social support, including cash handouts, will likely expand in depth and scope. In terms of measures, there are a few potential areas of focus, namely 1) addressing the weakened pension system, 2) further tourism promotions, and 3) tackling the issues in the property market.
Potential sectors that could benefit from Budget 2023
We see the consumer, construction, property and tourism-related sectors as potential beneficiaries of Budget 2023. The construction sector (our top picks: Gamuda, IJM, HSS) could benefit from higher development expenditure. For larger contractors, we believe new mega contract proposals beyond those approved in the past 6-12 months are unlikely to be introduced, given that the immediate focus (including financing priorities) is the implementation of the RM31bn MRT 3. The consumer sector (our top picks: QL Resources, MRDIY, Kawan Food) will likely benefit from cash transfers to the B40 group and measures to boost tourism activities (our top picks: Genting Malaysia, IGB REIT). The manufacturing
sector could benefit from tax incentives to encourage the adoption of labour-saving technologies. Industries highly dependent on foreign labour like agribusiness, manufacturing, services and construction could benefit if the government accelerates the foreign labour intake process. Budget 2023 will be mildly positive for the property sector if the government provides assistance to encourage homeownership or reduce construction costs. We also do not expect the government to extend the one-off prosperity tax ntroduced in 2022. Overall, we advise investors to stay defensive ahead of GE15.
