Singapore Strategy - CIMB Research 2018-02-20: Singapore Budget 2018

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Singapore Budget 2018 SGBudget2018 UOL GROUP LIMITED U14.SI CITY DEVELOPMENTS LIMITED C09.SI IHH HEALTHCARE BERHAD Q0F.SI RAFFLES MEDICAL GROUP LTD BSL.SI YONGNAM HOLDINGS LIMITED AXB.SI

Singapore Strategy - Singapore Budget 2018

• We think the Singapore Budget 2018 is an extension of the themes from previous budgets, which are mainly to save and invest for the country’s future.
• More details on the Budget will be elaborated by our economist, Michelle Chia.
• On equity, we see some impact on property, healthcare, construction, and REITS.

Expect short-term knee jerk reaction on 4% stamp duty

• Buyers' stamp duty (BSD) for residential property will increase from 3% to 4% for properties valued at more than S$1m, effective 20 Feb 18. BSD for non-residential properties will remain unchanged at 1% to 3%.
• Proximity Housing Grant (PHG) will be enhanced to strengthen support for family members living near each other. Families or singles buying a resale HDB flat to live with/close to their parents will receive a PHG of S$10,000-30,000. Together with the enhanced CPF Housing Grant and Additional CPF Housing Grant, a first-time applicant can get up-to S$120,000 in housing grants to live with their parents.
• The higher public housing grants would likely have a slight positive effect on the demand for public housing. However, the higher stamp duty rate could cause a negative knee-jerk reaction for private residential buyers, but a small positive for the HDB resale market. In the medium term, we think residential demand will still be supported by replacement housing for enbloc buyers. The rewards may outweigh the costs as residential prices continue to appreciate over time.
• Upcoming enbloc deals (i.e. those that have not signed any sale agreements) would have higher all-in land cost with the higher stamp duty. This may dampen the appetite for new enbloc transactions and slow the pace of new completions in the medium term when these sites are redeveloped. 
• We remain positive on the residential developers after the recent share price pullback and maintain our ADD ratings on UOL Group (UOL SP, Rating: ADD, Target Price S$9.62) and City Developments (CIT SP, Rating: ADD, Target Price S$13.15).

Prioritising healthcare but private sector unlikely to be threaten

• Healthcare spending will rise to at least S$13bn over the next decade, or c.3% of GDP (2.2% currently). Apart from enhancing the healthcare safety nets, the upcoming GST hike (from 7% to 9%) will also contribute towards planned healthcare investments - six new general and community hospitals, four new polyclinics and more nursing homes and eldercare centres in the next five years.
• The additional healthcare facilities and hospital beds are unlikely to threaten private hospital players like IHH Healthcare and Raffles Medical Group (RFMD). The hospital bed density in Singapore is still low at 2.5 beds per 1000 people, vs. developed nations like Japan and Korea. The market share of private hospital inpatient admissions has also been stable in recent years. 
• We have ADD ratings on IHH Healthcare (IHH MK, Target Price RM7.06) and Raffles Medical Group (RFMD SP, Target Price S$1.24), which have ventured overseas for exposure and growth.

Higher infrastructure spending

• A S$20bn budget has been set aside for infrastructure spending in 2018, above the S$16bn-19bn forecast for public construction demand announced by the Building Construction Authority last month. There will be a S$5bn railway fund to be set up, with increasing borrowing from government statutory board. We see civil engineering company Yongnam (YNH SP, Rating: ADD, Target Price S$0.53) as a beneficiary.

Tax transparency for S-REITs ETF

• Distributions made by S-REITs to S-REITs ETFs out of specific income derived by S-REITs are now subject to the prevailing corporate tax rate of 17%. Following the FY18 Budget, the tax transparency applied to S-REITs distributions will now apply to S-REITs ETFs. This means that the REITs ETF will not be subjected to tax on the specified income that is distributed to the unitholders. This is positive for S-REITs ETFs and should encourage more investments into ETFs or more REIT ETFs being established.

S$700m one-off SG bonus for Singaporeans above 21 years old

• There will be a one-off "SG Bonus" for all Singaporeans aged 21 and above, as a way of sharing some of this year's budget surplus with the nation. The bonus is in the form of a "hongbao" of S$300, S$200 or S$100, depending on annual income. This SG Bonus will cost the government about S$700m.
• The "hongbao" could give a slight boost to private consumption. However, the operating environment for the retail sector continues to be challenging and the scope for retail landlords to raise rents significantly would be limited. For investors who would like exposure to retail landlords, we prefer retail REITs, trading at attractive valuations, such as Mapletree Commercial Trust (MCT SP, Rating: ADD, Target Price S$1.75) and Frasers Commercial Trust (FCT SP, Rating: ADD, Target Price S$2.41).

LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2018-02-20

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