SG Budget 2016
Market Strategy
SG Economy: A measured Budget for 2016
- Focus on expanding economy
- And growing enterprises
- 2016 growth of 1-3%
Budget surplus expected in 2016
- The Singapore government has announced the Budget for 2016, with an eye on boosting economic expansion and innovation for the future, as well as helping those displaced by economic transformation.
- The Budget is expected to spend a total of S$33.9b for healthcare, education and transport, to grow Singapore's economy and invest collectively for the long term - in its people, home and security.
- It should still end with a surplus of S$3.4b; and this is made possible by the large expected Net Investment Returns Contribution (NIRC) of S$14.7b, as Temasek has been added to the NIRC framework.
Main spending on education, health and transport
- To grow the economy, Singapore will invest in building strong enterprises and nurturing innovative industries. For the people, it will invest S$12.8b in education; it will also increase health spending to S$11b, and is set to increase as the population ages.
- Transport will get S$10.1b, albeit a decline of 9.3% compared to 2015.
GDP growth likely in 1-3% range
- However, the Finance Minister Heng Sweet Kiat announced that he expects GDP growth to stay in the 1-3% range, after economic growth slowed to 2% growth in 2015 from 3.3% in 2014, given the strong headwinds from the weakness in the global economy.
- Due to the economic uncertainty, the government has also announced six measures to tide SMEs and struggling sectors over (details are in the individual sector summaries).
- On the individual front, the government has launched new initiatives for the Silver Support Scheme to help youth, seniors and disabled workers.
- The government has also introduced several Family Oriented Schemes to help Singaporeans start a family and raise their children. And other family and individual oriented schemes include a one-off GST voucher, as well as service and conservancy charges rebate, with the bulk of the benefits aimed at helping the lower income family.
(Research Team)
Healthcare sector: Technology to help transform industry
- In a similar vein to previous budgets, healthcare expenditure is expected to increase again, this time by 19.0% to S$11b. This will be directed towards supporting Public Healthcare Institutions and premium subsidies for MediShield Life.
- With plans to expand capacity further, there would be higher expenditure for the construction of healthcare infrastructure such as the Sengkang General Hospital, National Centre for Infectious Diseases, National Cancer Centre and Outram Community Hospital.
- We had previously mentioned that simply increasing bed base over time is not a sustainable model for any healthcare landscape, and as such, improving efficiency is one of the key objectives for hospitals. In line with this view, the budget cited the adoption of robotics technology as an ongoing method to transform certain procedures in hospitals.
- As the support towards automation initiatives continue to scale up, this leaves room for further enhancements on hospitals’ efficiency.
- Facing this industry level transformation, we expect private hospitals to adopt new technology and implement productivity initiatives as well. Fostering healthcare assurance has been a focus and this year in particular, the new Child Development Account (CDA) First Step grant for children can be used for healthcare needs.
- We believe the long term story for the sector remains intact. Riding on this is our pick, Raffles Medical Group [BUY, S$4.72].
Budget for the Land Transport Sector
- The projected FY16 expenditure of Ministry of Transport (MOT) would see a 9.3% decline compared with the revised FY15 expenditure to S$10.1b. Of this amount, 86.7% goes towards development expenditure, which is expected to decrease 15.3% due to completion of some airport works but offset by higher expenditure for rail projects such as the Thomson East-Coast Line (~S$2.8b).
- Delving deeper, we note that the total project cost for “bus procurement for FY15 to FY18” is ~S$768.4m, with an estimated S$224.8m to be spent in FY16, and this amount likely pertains to LTA purchasing back the buses it funded through Bus Service Enhancement Programme (BSEP) since 2012. However, there is still little detail and clarity over how the government may structure the purchase all of SMRT [HOLD; FV: S$1.51] and CDG [BUY; FV: S$3.40] bus assets. Therefore, we continue to maintain our NEUTRAL rating on the sector, although the absence of clarity seems to suggest progressive payment rather than lump sum payment.
(Eugene Chua)
Oil and Gas sector
- One of the key focus areas for this year’s budget was to support SMEs, and considering that there are many SMEs in the Offshore & Marine sector, which has also been one of the most affected sectors so far due to macroeconomic conditions, it is perhaps not surprising that help was offered to this segment.
- In view of challenging businesses conditions in the Marine and Process sectors, the levy increases for work permit holders will be deferred for one year.
- To support viable SMEs that may have cash flow concerns, an SME Working Capital Loan scheme will also be introduced, for loans of up to S$300k per SME. Under this scheme, the government will co-share 50% of the default risk of such loads with participating institutions, to encourage lending to our SMEs. This loan will be available for three years and could catalyse more than S$2b of loans over this period.
- Finally, Finance Minister Heng also quoted an interesting comment from an SME boss, “There is no such thing as a sunset industry; only sunset thinking”, which is perhaps relevant to this sector, amongst others. Maintain NEUTRAL on the oil and gas sector.
(Low Pei Han)
Research Team
OCBC Securities
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Jodie Foo
OCBC Securities
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Eugene Chua
OCBC Securities
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Low Pei Han
OCBC Securities
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http://research.uobkayhian.com/
2016-03-28
