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2020 Singapore Budget - RHB Invest 2020-02-20: Remains Focused On Long-term Needs

2020 Singapore Budget - RHB Investment Research | SGinvestors.io UNITED OVERSEAS BANK LTD (SGX:U11) SUNTEC REAL ESTATE INV TRUST (SGX:T82U) SHENG SIONG GROUP LTD (SGX:OV8) ESR-REIT (SGX:J91U) MANULIFE US REIT (SGX:BTOU)

2020 Singapore Budget - Remains Focused On Long-term Needs

  • While the 2020 Budget addressed near-term concerns of industries and Singaporeans who have been and could be impacted by the COVID-19 outbreak, we applaud the Government’s efforts to build on past budgets and remain focused on the long-term growth, transformation and sustainability of the country, its businesses and its people.
  • We view the Budget as mildly positive for the banking, REITs and consumer (excluding F&B) sectors.



Financials Sector Impact : Fiscal boost could mitigate deterioration in banks’ asset quality

  • Singapore’s Ministry of Trade and Industry (MTI) has downgraded the 2020 GDP forecast from between 0.5% and 2.5% to between -0.5% and 1.5%, with GDP growth likely to come in at 0.5% for the full year. However, the Government has announced an expansionary budget for FY2020 that will impart a considerable fiscal boost to the economy to address near-term concerns. The Government is expecting an overall budget deficit of SGD10.9bn for FY2020, or 2.1% of GDP.
  • Although Singapore banks should see higher loan loss provisions in 2020 as compared to 2019, we believe this increase could be partly mitigated by the fiscal boost announced by the Government in the latest Budget.
  • We retain our NEUTRAL weight for Singapore banks. NIM for Singapore banks is expected to narrow in 2020 amidst expectation of lower Singapore Interbank Offered Rate (SIBOR) in 2020 as compared to that in 2019. At the same time, a weaker economic environment should lead to slower loan growth and more loan loss provisioning. However, banks’ share prices could be supported by the respectable dividend yield of c.5%.
  • UOB (SGX:U11) (NEUTRAL, Target Price: SGD25.80) is our preferred exposure to the sector, given its lower loan exposure to Greater China, a region that could see severe negative economic impact from the outbreak of COVID-19.


Consumer Sector Impact : Budget to help to companies cope with fixed costs

  • Consumer companies affected by the outbreak of COVID-19 will receive government support to alleviate the some of the fixed costs. For consumer sector stocks under our coverage, we viewshould receive some form of aid from the Budget.
  • Labour is one of the main fixed costs of the retail and IR businesses. The job support scheme (offset 8% of wages up to SGD3,600 for three months) and enhanced wage credit scheme (co-fund 20% of wage increase for wage of up to SGD5,000) could help to off-load some of the labour cost burden. The budget also offers opportunities to ensure that excess manpower is sent for training and reskilling to ensure that they could be redeployed to other divisions.
  • To assist sectors directly impacted by the outbreak of COVID-19, such as retail, and food services, funding support duration for the following existing redeployment programmes will be extended from the current three months to a maximum of six months. We expect all the above mentioned companies to see an increase in receipt of government grants this year to offset fixed labour costs while their revenues are negatively impacted.
  • The Government has also taken the lead to offer some waivers for rent, which is another major fixed cost for retail businesses. To support hawkers, the National Environment Agency (NEA) will provide one month’s worth of rental waivers to stall holders of NEA-managed hawker centres and markets, with a minimum waiver of SGD200. To help alleviate costs for businesses located in other Government-owned / managed facilities, Government agencies will provide half a month’s worth of rental waivers to eligible commercial tenants/lessees who are on leases not exceeding three years, and do not pay Property Tax.
  • For stocks under our coverage,
    • Sheng Siong Group, followed by Kimly, would stand to benefit the most as they have most number of stores rented from HDB. A couple of Kimly stalls operate at NEA-managed hawker centres that may be legible for a one-month rental waiver.
    • Most BreadTalk Group, Dairy Farm International, Jumbo Group and Japan Foods (SGX:5OI) Foods outlets operate in private properties. For those, the Government would give 15% property tax rebates to qualifying commercial properties. According to most of the retail mall owners, most of the property tax rebates would translate into rent reduction for the tenants.
    • Genting Singapore would go under the Integrated Resorts (IR) category and receive a 10% property tax rebate.
  • We expect domestic spending to decline in 2020 on rising uncertainties from the COVID-19 outbreak and softening economic outlook. Food service retail and IR businesses are likely to be adversely impacted in 1H20. Recovery in 2H20 would depend on how quickly the COVID-19 situation resolves. We expect demand for consumer staples to be more resilient. The Care and Support package of household amounting to SGD1.6bn would also help support domestic consumer staple spending. The package includes cash dish-out of SGD100-300 to all Singaporeans above age 21, GST vouchers and rebates on service and conservancy charges. Lower-income families, families with children and the elderly would receive additional cash vouchers / pay out / top-ups.
  • Against the backdrop of a virus epidemic and weakening economic outlook, we expect the food service retailers and IR to be more affected than grocery retailers and food and beverage production companies. We maintain our NEUTRAL recommendation on the sector, with as Top Picks.


Real Estate Sector Impact : Continued tightening of immigration policy stance

  • Although no targeted policy measures were announced, the Government continued its emphasis on tighter immigration policy with further reduction in S Pass sub-DRCs limits of the construction, marine shipyard, and process sectors.
  • The foreign population has remained stagnant over the last four years after doubling during the 2005-15 period. As a result, overall population growth has more than halved to a CAGR of 0.8% during 2014-2019, compared to 1.9% during 2009-2014. The slower population growth is likely to cap property price appreciation in the future, and we expect a modest 0-2% increase in the Urban Redevelopment Authority’s (URA) private property index for 2020.
  • In the near term, we expect the sentiment on the property market to remain slightly negative as buyers are developers are likely to hold back on purchase and launch plans due to the outbreak of COVID-19 and weak economic growth.
  • We maintain our NEUTRAL rating on the sector with CapitaLand (SGX:C31) (BUY, Target Price: SGD4.20) as our Top Pick.


REITs Sector Impact : Property Tax rebates to fend off fight near-term weakness

  • The Government announced a 30% property tax rebate for 2020, for the accommodation and function room components of licensed hotels and serviced apartments, and prescribed Meetings, Incentives, Conventions, and Exhibitions (MICE) venues. Based on FY19 data, property taxes accounted for about 5-6% of gross revenue for hospitality REITs and thus a 30% cut will result in a c.2% boost to net income.
  • Additionally, the Government also enhanced several tax treatments under the corporate tax system for one year which will allow enterprises a faster write-down of their investments in plant and machinery, and renovation and refurbishment incurred for the current financial year. This, in our view, could prompt hospitality players to bring forward some of their asset enhancement plans to this year.
  • The Government also announced 15% tax rebates for qualifying commercial properties. Qualifying commercial properties examples are premises of an international airport, cruise or regional ferry terminal, shops (eg retail and F&B), including those within hotel buildings, serviced apartment buildings, and the prescribed MICE venues; and premises of tourist attractions. Based on our preliminary discussion with industry contacts, retail REITs, if eligible, are likely to pass on such rebates to tenants to mitigate the short-term impact.
  • While the property tax rebates are likely to offer some short-term relief for hotel operators and retail mall owners, we believe the actual impact to REITs will depend on how long the current virus situation prolongs. Amidst this uncertainty, we expect investor sentiment to remain muted towards hospitality REITs and retail REITs, especially those that are located in prime tourist locations. Therefore, we maintain our NEUTRAL rating on these two subsectors.
  • Overall, we maintain our OVERWEIGHT call on the REITs sector and expect it to outperform STI on the back of expectation of interest rate cuts and continued hunt for yields amid current uncertain macroeconomic environment.
  • Our top picks are


Transport Sector Impact : Short-term support to aviation and marine sectors; assistance in adoption of EVs by land transport operators


Short-term support to aviation and marine sectors:

  • The Government announced that the aviation sector, which is among the sectors hardest hit by the COVID-19 outbreak, will get a SGD112m package to help defray business costs and protect jobs. The Aviation Sector Assistance Package will be co-funded by the Government, the Civil Aviation Authority of Singapore (CAAS) and Changi Airport Group (CAG). The package aims to provide immediate relief to companies as assistance will be provided for a 6-month period. Under the package, the Government will implement a suite of measures, comprising of rebates on aircraft landing and parking charges, assistance to ground handling agents, and rental rebates for shops and cargo agents at Changi Airport. Changi Airport will also get a 15% property tax rebate.
  • In addition, all airlines that operate flights between mainland China and Singapore will get landing credits. Carriers such as Singapore Airlines, which continue to operate scheduled passenger flights between mainland China and Singapore during the outbreak period, will get a 100% landing charge rebates for these flights. All Singapore carriers operating scheduled flights will also get to save an estimated SGD6m on regulatory fees, as a result of the CAAS providing a 50% rebate on fees for new and renewed Certificates of Airworthiness. These carriers are required to pay the fees on an annual basis.
  • The Maritime and Port Authority of Singapore will give 50% port dues concession to cruise ships and regional ferries with a port stay of not more than five days, and passenger-carrying harbour craft. This will be on top of any existing concessions. It will be implemented from March to August 2020.
  • Although the measures announced by the Government will assist the aviation sector players, especially Singapore Airlines (SGX:C6L) and SATS (SGX:S58), to weather through the near term headwinds caused by the COVID-19 outbreak, we believe the industry will continue to face structural headwinds from an expected slower global economic growth.

ComfortDelGro to benefit over the long term from assistance provided towards EV adoption:

  • Since early 2019, ComfortDelGro (SGX:C52) (NEUTRAL, Target Price: SGD2.25) has been undertaking trials for electric vehicles with the Hyundai Kona Electric taxi. We believe the Government’s plan to support early adoption of EVs amongst residents and taxi operators should benefit ComfortDelGro. However, the limitation of island-wide availability of charging stations and ComfortDelGro’s recent refreshment of its taxi fleet to hybrid vehicles will limit its ability to rapidly adopt EVs in the near term.

See attached 13-page PDF report for complete analysis.






Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-02-20
SGX Stock Analyst Report HOLD MAINTAIN HOLD 25.800 SAME 25.800
BUY MAINTAIN BUY 2.080 SAME 2.080
BUY MAINTAIN BUY 1.390 SAME 1.390
BUY MAINTAIN BUY 0.600 SAME 0.600
BUY MAINTAIN BUY 1.120 SAME 1.120


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