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2018 Singapore Budget - Expecting a Positive “Post Budget” Market Reaction

Shared By Stock Fanatic on Tuesday, February 20, 2018 | 20.2.18

With the exception of the BSD increase for residential property transactions, Budget 2018 was positive for all business sectors. The carbon tax implementation should translate into higher capex for the corporates and support strong loans growth for domestic banks. The tax removal on the distribution of specified income by REIT ETFs is likely to be positive for the REITs sector. And, with concerns of an impending GST hike now behind us, we expect consumer sentiment to remain buoyant in 2018. We remain upbeat on Singapore’s growth outlook, and continue to prefer exposure to the consumer, real estate, REITs and banking sectors.

Consumer sentiment to remain positive. With the GST hike implementation deferred to the “earlier part of 2021-2025”, we expect consumer sentiment – which is witnessing early signs of recovery – to remain upbeat in 2018. This should be supported by the SGD100.00-300.00/person “SG Bonus” to be paid out of the FY17 budget surplus to every adult citizen. We assess that the wage credit scheme extension till 2020 would be positive for consumer companies like Sheng Siong Group (SSG SP, NEUTRAL, TP: SGD0.99), BreadTalk (BREAD SP, BUY, TP: SGD2.09) and Neo Group (NGL SP, NEUTRAL, TP: SGD0.64).

Property developers may see some knee-jerk share price reactions. The introduction of a top marginal buyers stamp duty (BSD) of 1% for residential property, although unexpected, should not significantly dampen the housing market. We assess that any weakness in share price for property developers would offer a good buying opportunity. We recommend investors to buy CapitaLand. APAC Realty should also benefit from the expected rise in Housing Development Board (HDB) resale transactions following the Government’s announcement of higher Proximity Housing Grants (PHGs).

REITs to benefit from tax transparency on REIT exchange-traded funds (ETFs). REIT ETFs, which are now subject to the prevailing corporate tax rate of 17%, would no longer be subjected to tax on the specified income that is distributed to unit holders. Thus, we anticipate more REIT ETF-based products to hit the market in the near term, which would help widen the investor base and boost the liquidity for SREITs. Our REIT Top Picks are Ascendas REIT, OUE Hospitality Trust and Manulife US REIT.

Announcement of strategic national projects under the Smart Nation initiative. Under Smart Nation, the Government is to introduce strategic national projects. These include a sensor platform for Internet of Things (IoT) devices, a National Digital Identity system to enable citizens to authenticate identities for online transactions, an adoption of e-payment island-wide system, and the opening up of digital platforms for the private sector. We expect ST Engineering (STE SP, BUY, TP: SGD4.04) to be the key beneficiary of these initiatives.

Continued support for small and medium enterprises (SMEs) and offshore & marine (O&M). We view the extension of the wage credit scheme, enhancement to the Corporate Income Tax (CIT) rebate, and higher tax deductions for using and registering intellectual property as key measures to support the SME sector. Deferment of the earlier-announced increase for foreign workers levy in the O&M sector should be positive for Keppel Corp and Sembcorp Marine. (Read Report)

Source : RHB Research

Posted on Tuesday, February 20, 2018 | 20.2.18
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