• Maybank Investment Bank's (Maybank IB) research and economics team is overall positive on the Budget 2024 measures, "with fiscal consolidation commitment reiterated, yet the national budget is expansionary and pro-growth".

KUALA LUMPUR (Oct 15): Construction and consumer players stand to gain the most from the policies announced in Budget 2024 on Friday, say analysts.

Maybank Investment Bank's (Maybank IB) research and economics team is overall positive on the Budget 2024 measures, "with fiscal consolidation commitment reiterated, yet the national budget is expansionary and pro-growth". It is of the view that the biggest winner is the construction sector on higher development allocations and new projects, such as the Klang Valley Light Rail Transit’s five new stations worth RM4.7 billion, the RM11.8 billion nationwide flood mitigation programme, and Penang’s first LRT project worth RM10 billion.

“The gross development expenditure (GDE) allocation for 2024 is RM90 billion. At RM90 billion GDE, this constitutes 4.5% of gross development product, which is above the 3% minimum threshold under the recently passed Public Finance and Fiscal Responsibility Bill 2023 by the House of Representatives,” it said in a report on Saturday.

It has “buy” calls on IJM Corp Bhd, Gamuda Bhd and Cahya Mata Sarawak Bhd.

Maybank IB also sees the aviation sector as a key beneficiary of Budget 2024, due to higher allocations to boost tourism and promote tourism activities ahead of Visit Malaysia Year 2026, which was deferred from 2025.

“Within the sector, the biggest beneficiary is Malaysia Airports Holdings Bhd (MAHB), as its passenger service charge rates for international passengers are five times to seven times that of domestic ones. AirAsia X Bhd (AAX) is also likely to be another big beneficiary, while Capital A Bhd is likely to be a minor beneficiary, as only 50% of its passengers are bound for international destinations. Another minor beneficiary is Genting Malaysia Bhd (GenM),” it added, with “buy” calls on MAHB, AAX and GenM.

Selected players in the consumer and software technology sectors are also potential winners of the measures in Budget 2024, said Maybank IB.

“The removals of poultry subsidies and price controls is positive for players like QL Resources Bhd ("hold") and Leong Hup International Bhd ("buy"), as it will enable efficient cost-pass through mechanisms to be implemented, and allow market demand and supply forces to dictate average selling price fluctuation for live broilers and eggs. The restriction on entry points to specific ports only for liquor will ease enforcement efforts on smuggling operations of liquor, which bodes well for both Carlsberg Brewery Malaysia Bhd ("buy") and Heineken Malaysia Bhd ("buy") in terms of sales volume,” it noted.

The bank also expects selected players in the software technology sector to gain from Budget 2024’s targeted measures to accelerate digital infrastructure development and adoption, with ITMAX System Bhd ("buy") being a clear beneficiary of the government’s efforts to revamp public infrastructure pertaining to traffic control and street lighting.

“Budget 2024’s sizeable allocation of RM1.6 billion for HRD Corp’s training and upskilling programmes could benefit Ramssol Group Bhd’s ("buy") educational technology segment in its role as a certified training programme coordinator. Grants for small and medium enterprises' digitalisation and automation will also directly benefit e-payment solution providers like GHL Systems Bhd ("hold") and CTOS Digital Bhd ("buy"), via its expansive portfolio of credit-related products,” it added.

On the other hand, Maybank IB deems the gaming sector a clear loser, due to a higher service tax rate that the gaming operators will have to absorb, although the impact on their earnings will be small, and there are remedial measures.

“Thus, we are not inclined to trim our earnings estimates and target prices (TPs) just yet. We have 'buy' calls on GenM, Genting Bhd and Magnum Bhd,” it noted.

The government is planning to raise the service tax rate to 8% next year from 6% currently, except for food and beverages (F&B) and telecommunications services. The scope of taxable services will include logistics, brokerage, underwriting and karaoke services.

“We estimate that the higher service tax rate will trim our earnings estimates for GenM, Magnum and Sports Toto Bhd by a minimal 4% to 5%, and this could be off-set by remedial measures like: i) lower junket commission rates or lower direct VIP rebates rates (by Resorts World Genting); ii) lower prize payouts (by the number forecast operators); and iii) more enforcement action against illegal gaming operators.

“Enlarging the scope of the service tax to include brokerage could also negatively impact trading activities on Bursa Malaysia due to higher transaction cost, especially during the current low equity average daily value of RM2 billion, compared with RM4.3 billion in 2020 and RM3.7 billion in 2021,” it said.

The bank is maintaining its end-2023 FBM KLCI target at 1,520 points, which implies 13 times one-year forward price-earnings ratio (PER), and end-2024 KLCI target range of 1,600 to 1,700 (tentative), based on 13 times to 14 times one-year forward PER. At Friday’s closing of 1,444 points, the benchmark index was trading at 12.7 times one-year forward PER.

Meanwhile, CGS-CIMB Research sees Budget 2024 as positive for the consumer sector in general (staples and discretionary).

“Civil servant bonuses of up to RM2,000 (payable in February) were the highest announced since 2013. Handouts under the Sumbangan Tunai Rhamah, meanwhile, were increased 25% to RM10 billion. Both of these measures should, in our view, provide a positive impetus to revenues and earnings for the consumer sector in general,” it said in a strategy report on Friday.

“The proposal to remove the cap on chicken and egg prices should be neutral for QL Resources. We estimate that revenues from eggs and broilers in Malaysia will contribute about 17% of its FY2023/FY2024 revenues (QL Resources' financial year ends on March 31). The shift from a subsidised to a floating price mechanism should leave margins unchanged, in our view,” it said.

The research firm expects the proposed increase in the sugar tax rate to 50 sen per litre next year, from 40 sen per litre currently, on sugar-sweetened beverages to have a limited impact on the likes of Nestlé (Malaysia) Bhd, Fraser & Neave Holdings Bhd and Power Root Bhd. If anything, the F&B producers were anticipating a wider scope for the tax.

“Additionally, we understand that most producers have generally tweaked their product formulas to account for the potential increase and a wider scope for the tax. Within the consumer discretionary sector, our preferred picks remain Berjaya Food Bhd and Power Root,” CGS-CIMB Research said.

On the other hand, Kenanga Research likes banks (for fiscal sustainability), contractors (the roll-out of public projects), telecommunications and utilities (earnings defensiveness), consumer staples and automakers/distributors of affordable vehicles (resilient bottom 40% income group spending), noting that these sectors have emerged as clear winners of Budget 2024.

It sees potential beneficiaries of the Electric Motorcycle Usage Incentive Scheme, which provides up to RM2,400 rebates to Malaysians earning below RM120,000 per year who purchase e-motorcycles, to be Hong Leong Industries Bhd ("outperform"; TP: RM11.40) for its association with the strong Yamaha motorcycle brand in Malaysia, and the brand’s market leader position in the local motorcycle segment. “Hong Leong Industries is seriously looking into the localisation of electric motorcycles in the next few years.

“Potential beneficiaries of the electric vehicle (EV)-related duty reduction and subsidies would be Bermax Auto Bhd ("outperform"; TP: RM3.22) given its wide offerings of EV models, while those for the taxi and e-hailing market are Perodua of MBM Resources Bhd ("outperform"; TP: RM4.70) and Proton of DRB-Hicom Bhd ("market perform"; TP: RM1.45), given their presence in the affordable market segment,” Kenanga Research said.

The research firm is reiterating its end-2023 KLCI target of 1,520 points based on 16.5 times its 2023 earnings projection (-4%). It projects an earnings growth of 10.5% for the benchmark index in 2024.

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