Singapore 2018 Budget
Winning Stocks of Budget 2018
HOCK LIAN SENG HOLDINGS LTD
J2T.SI
KSH HOLDINGS LIMITED
ER0.SI
JUMBO GROUP LIMITED
42R.SI
SHENG SIONG GROUP LTD
OV8.SI
Singapore Budget 2018 - Sector Impacts and Winning Stocks
- There are no major surprises in Budget 2018.
- Together with the “hongbao” of S$100-300 for every Singaporean (aged 21 and above), the consumer sector and retailers could enjoy a slight boost. Beneficiaries could include Courts Asia, Sheng Siong, Jumbo Group and FJ Benjamin.
- Spending on infrastructure continues to be a key focus and beneficiaries could include KSH Holdings and Hock Lian Seng.
SECTOR IMPACT - Property Sector / S-REITs
MAINTAIN OVERWEIGHT on property and REITs.
- We believe the government’s intention on raising the BSD rate is more of revenue collection amid the buoyant property market, rather than a property cooling measure. The impact on home-buying demand will be marginal, with the mass-market segment relatively unaffected.
- Increased infrastructure spending will benefit properties in the vicinity, and the increase in the PHS will bolster HDB resale prices.
- The deferment of GST and Singapore bonus “hongbao” will boost retail sentiment.
- Maintain OVERWEIGHT on both sectors with City Developments, Wing Tai, CDREIT, CapitaLand Commercial Trust and Ascendas REIT as our top picks.
Marginal impact from increase in regular BSD.
- Prior to 20 Feb 18, the BSD rate was up to 3%. With effect from 20 Feb 18, the BSD rate for acquisition of residential properties is up to 4%. All options must be issued on or before 19 Feb 18 and exercised before 12 Mar 18 to avail the old BSD rates.
- We believe the government’s intention is more of revenue collection amid the buoyant property market, rather than a property cooling measure. The impact on home-buying demand will be marginal as the new BSD is unchanged for properties priced below S$1m, while those ranging S$1m-2m will see up to S$10,000 (up to 0.5ppt) increase in BSD rates. These account for the bulk of the transactions.
- The high-end properties will see a bigger impact with the effective BSD rates rising 0.8-1ppt, but affordability is a lesser constraint for buyers in this segment.
Increased infrastructure spending to benefit properties in the vicinity.
- Some of these projects, which will be carried out over the span of the next decade, include Jurong Lake District, Punggol Digital District, Woodlands North Coast, Changi Airport Terminal 5, Tuas Port, the KL-Singapore High-Speed Rail, as well as the expansion of the rail network.
Increased PHG for families.
- Families buying a resale flat to live with their parents or children will benefit from an increased PHG of S$30,000 (up from S$20,000). For those buying a resale flat near their parents or children, they will continue to receive a PHG of S$20,000.
SECTOR IMPACT - Construction Sector
- In Jan 18, the Building and Construction Authority (BCA) expected the value of all construction contracts to be awarded in 2018 to range between S$26b and S$31b (public contracts to range between S$16b and S$19b), up from S$24.5b in the preliminary 2017 estimates.
Higher projection for public infrastructure spending.
- In the 2018 Budget, the projection for public infrastructure spending is raised to S$20b, higher than BCA estimates. Projects over the next decade include the expansion of the rail network, Jurong Lake District, Punggol Digital District, Woodlands North Coast, Changi Airport Terminal 5, Tuas Port and the KL-Singapore High-Speed Rail.
Better times ahead for the sector.
- This is a positive to the construction sector, which has experienced a challenging 2017. We expect this and the property market recovery to improve prospects for the sector.
- Our top picks are Hock Lian Seng (BUY/ Target: S$0.63) and KSH Holdings (HOLD/Target: $0.87 (Under review)).
SECTOR IMPACT - Offshore & Marine
Foreign worker levy hike deferred for another year.
- Levies for R1 and R2 workers in the offshore marine sector will remain at S$300 and S$400 per month respectively for 2018. A levy hike to S$350 and S$500 per month was due on 30 Jun 18, but this will be delayed by another year. The savings per worker is estimated at S$600 and S$1,200 per year.
Deferment of levy a right move but marginal impact on firms.
- The deferment represents a step in the right direction to help offshore marine firms contain costs in the face of continued weak demand despite higher oil prices. However, it remains insufficient to turn the tide for the beleaguered O&M companies, which still suffer from poor or negative operating cash flows and crushing debt loads that threaten to throw smaller players into insolvency.
Impending carbon tax: 2% impact on Sembcorp Industries and Keppel Corp.
- The impending carbon tax of S$5 per tonne of CO2 produced is expected to have negligible impact on both Keppel Corp and Sembcorp Industries.
- Based on 2016 disclosures, Keppel Corp's direct CO2 emission was about 1.03m tonnes (mt) per year, translating into a tax of S$5m-6m. Sembcorp Industries does not provide a breakdown of its emissions for Singapore, which include its cogen plants and gas operations. Direct CO2 emissions are estimated at 1.5mt per year, translating into a tax impact of S$7.5m.
- Against their 2016 net profis, these tax amounts represent 1% for Keppel Corp and 2% for Sembcorp Industries.
CONCLUSION - Stock Picks
Winners of Budget 2018.
- There are no major surprises in Budget 2018. A slight positive is the delayed implementation of GST in 2021-25 compared with UOB Global Equity Market Research’s (GEMR) expectations of a 1ppt hike each in 2018 and 2019.
- Together with the “hongbao” of S$100-300 for every Singaporean (aged 21 and above), the consumer sector and retailers could enjoy a slight boost. Beneficiaries could include Courts Asia, Sheng Siong, Jumbo Group and FJ Benjamin.
- Spending on infrastructure continues to be a key focus and beneficiaries could include KSH Holdings and Hock Lian Seng.
Sectors negatively impacted.
- Conversely, the announcement of a hike in BSD is marginally negative on demand for residential properties. Nevertheless, we see this as a measure to raise revenue amid a buoyant property market rather than a property cooling measure. We are OVERWEIGHT on developers and our top picks are City Developments and Wing Tai.
- The impending introduction of a carbon tax is marginally negative on Keppel Corp and Sembcorp Industries but the impact is only from 2020.
Stay selective and stick to UOBKH investment themes.
- The FSSTI has started the year strongly, up 2.5% ytd and close to our year-end target of 3,530.
- Our target is based on a 10% discount to the long-term mean P/B and long-term mean PE. However, we think our FSSTI target could stretch to 3,730 if earnings surprise to the upside. The stretched target is based on a blend of long-term mean PE and P/B.
- Investment themes we favour include:
- Multi-year growth drivers – Venture Corp, Cityneon, Raffles Medical Group and Citic Envirotech.
- Reflation picks – City Developments, Keppel Corp, Wing Tai.
- Quality laggards – SingPost, Raffles Medical Group, ComfortDelGro.
- Stocks with earnings upside or specific catalysts – Venture Corp.
Singapore Research
UOB Kay Hian
|
http://research.uobkayhian.com/
2018-02-20
UOB Kay Hian
SGX Stock
Analyst Report
0.63
Same
0.63
0.870
Same
0.870
0.59
Same
0.59
1.060
Same
1.060
