Budget 2013: What's the view by Foreign research houses?

Hmmm... Yup, the title is correct. We at Finance Malaysia blog would like to hear the views from Foreign analysts only this time. Why? Because they tend to be more independent (we think), and we know that readers like you can easily access to local research reports. So, we made the decision to only show you what is written by foreign analysts as below:

Phillip Capital Management: An earnest & all-around Budget?

"People’s livelihood, affordable housing and tax issues topped the pre-budget wish lists. Weeks before the announcement, there were many discussions about the Budget 2013 in the media and various conjectures about the budget outcome. Everybody in town was anxiously waiting for the Prime Minister’s speech to reveal the Budget 2013, hoping the wish in one’s heart and mind will come true. TV camera shots have shown that people have been in high spirits cheering for the Santa Claus during the speech. We think Barisan Nasional has successfully drawn up the budget that appears to benefit the majority of people especially the middle-income segment just to keep in voters’ good graces.

However, off the radar of the camera shots, people are debating about the fiscal deficit that has been running for the 15th straight year and the high level of government debts which is approaching 55% to GDP. People expect their money to be used more efficiently to improving the competitive landscape, cutting wastage and leakage, commitment towards more R&D. Although Budget 2013 will bring down the fiscal deficit to 4% of GDP and disclosed that the deficit will continue to narrow to 3% by 2015, people still question if the budget is drafted in earnest. Only time will tell!

Overall, we think there is no big surprise from the Budget 2013 and will not have big impact to the market. However, there are some sectors that will benefit and should get some boosts from the budget such as consumer, construction and oil & gas."

UOB Kay Hian: Reining In Spending...

"The market-neutral Budget 2013 again reaches out to the lower to lower-middle income segments with cash handouts and a cut in tax rates, but reins in the overall deficit with marginally lower government expenditure. Highlights include the establishment of business trusts, a modest real property gain tax (RPGT) hike, and incentives for the oil & gas (O&G) sector. Potential winners are beneficiaries of business trust structures that enable cash distributions, such as BToto and DiGi, selected consumer stocks, particularly BAT (no duty hike), as well as micro-lending institutions like RCE and MBSB, while minor losers are high-end property developers due to modest RPGT rate hikes.

Promoting the establishment of business trusts... A key proposal of Budget 2013 is the establishment of business trusts which add vitality to the capital market (hence making Bursa a minor beneficiary), but more importantly allow a handful of local companies to optimise their capital structure and distribute surplus cash. Potential beneficiaries are cash flow-rich companies with suboptimal capital structures (cash-rich or under-leveraged) that are constrained by a lack of shareholder reserves.

…and O&G investments, which include a 10-year 100% Investment Tax Allowance for investments in refinery activities with regard to petroleum products, and an enhanced 100% income tax exemption on statutory income for the first three years of operations for liquefied natural gas (LNG) trading companies under the Global Incentive for Trading (GIFT) programme.

Strategy: We continue to advocate a defensive strategy amid a peakish market, cautious external outlook and a potentially early general election (GE13). Thematically, we like:

1. beneficiaries of business trust creation,
2. in the O&G sector, beneficiaries of rising exploration and production (E&P) activities, such as Perisai, and significant property owners at Pengerang, and
3. selected beneficiaries in various iconic government developments – Iskandar Malaysia and Tun Razak Exchange (TRX).

Our key top picks are BToto, DiGi, Gamuda and SapuraKencana. Smaller-cap favourites include MPHB, Perisai, Top Glove and Tradewinds Plantation while MRCB is a key situational stock. Meanwhile, we have upgraded BAT to HOLD (target price raised to RM57.70 from RM49.00) as we now foresee a rising momentum in volume recovery without a duty hike."