SINGAPORE TECH ENGINEERING LTD (SGX:S63)
COMFORTDELGRO CORPORATION LTD (SGX:C52)
Singapore Budget 2019 - Strategy Note
- Our impression of the 2019 Singapore budget is non-radical. The further tightening of foreign labour policies is not materially negative, cushioned by automation grants.
- There was no sugar tax or details on e-commerce tax as expected by consensus.
- Stocks with positive implications: SINGAPORE TECH ENGINEERING LTD (SGX:S63, ST Engineering) on more spending in physical and cyber defence; COMFORTDELGRO CORPORATION LTD (SGX:C52) could indirectly benefit from higher excise diesel duty.
Further tightening of labour policies cushioned by automation
- SME and foreign labour-dependent sectors will not see an alleviation of the tightening of foreign labour policies, especially in the service sector, as the government is reducing the Dependency Ratio Ceiling from 40% currently to 38% from 1 Jan 2020 and 35% in 2021. S Pass Sub DRC will be reduced from 15% to 13% in 2020 and 10% in 2021.
What we think:
- The headline is slightly negative but we expect this to be cushioned by the extension (to Mar 2021) of the automation support grant (encouraging companies to embark on large-scale automation projects). For instance, funding support of up to 50% of qualifying costs for the rollout of scaling up automation projects capped at S$1m, 100% investment allowance for capex capped at S$10m and risk sharing for equipment financing loans.
- Companies that could be implicated are SHENG SIONG GROUP LTD (SGX:OV8), SINGAPORE POST LIMITED (SGX:S08), SATS LTD. (SGX:S58), SIA ENGINEERING CO LTD (SGX:S59), SIA ENGINEERING CO LTD (SGX:S59) and JUMBO GROUP LIMITED (SGX:42R). We are slightly positive on HRNETGROUP LIMITED (SGX:CHZ) as 4% of its 1H18 total revenue was derived from the services-related sector as further tightening of policies and workforce could increase its reliance on outsourced services. We see a neutral impact on ComfortDelGro’s bus operations as the Bus Contracting Model incorporates wage indexation.
- Increase in foreign worker levy rates of S$50-100/month for the marine shipyard/process sectors will be deferred for another year after being deferred in 2018. We see a limited impact on SEMBCORP MARINE LTD (SGX:S51) and KEPPEL CORPORATION LIMITED (SGX:BN4)’s O&M sector given the weak order book that may not require a ramp-up in hiring.
Emphasis on security and cyber defence
- The government will continue to invest a significant amount of resources, c.30% of total expenditure to support defence, security and diplomacy efforts. Digital defence has been incorporated as the sixth pillar of Total Defence. This bodes well for ST Engineering’s electronics and land systems divisions.
Continued restructuring of diesel taxes
- Excise duty for diesel will be raised by S$0.10/litre to S$0.20/litre immediately. Annual Special Tax on diesel taxis will be reduced by S$850 permanently.
- We could see c.S$7m in cost savings for ComfortDelGro but this is likely to be passed through to drivers in rental rebates (up to S$1.70 per day). The positive is the accelerated pace of switching from diesel to hybrid taxi models (c.27% of ComfortDelGro’s taxi fleet is hybrid; c.9% higher rental rate).
Bicentennial Bonus to help lower-income Singaporeans
- 1.4m Singaporeans (lower-income) will receive up to S$300 in GST vouchers and 10% of total Workfare Income Supplement schemes with a minimum payment of S$100. Personal income tax rebate of 50% of YA2019 tax capped at S$200 per tax payer. Unlike previous years’ handouts, we think this may not spur overall spending.
S$8bn Merdeka generation (born in the 1950s) health package
- We see limited benefits for the private sector. The handout comprises MediSave top-ups (S$200 per person annually for five years starting 2019), more subsidies for MediShield Life Premiums (5-10% off annual premiums) and outpatient care for life (particularly for common illnesses, chronic conditions and dental procedures). This is broadly similar to the 2014 S$8bn Pioneer Generation Package.
- These subsidies are only applicable at polyclinics, public specialist outpatient clinics, and registered GP/dental clinics (e.g. RMG, Q&M Dental).
LIM Siew Khee
CGS-CIMB Research
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https://research.itradecimb.com/
2019-02-19
SGX Stock
Analyst Report
3.940
SAME
3.940
2.740
SAME
2.740
