Singapore 2020 Budget - UOB Kay Hian 2020-02-19: Deploying Lifeboats


Singapore 2020 Budget - Deploying Lifeboats

  • The major focus is on helping the Singapore economy ride through the negative impact from the COVID-19 outbreak. We see some decent near-term impact from the Budget in selective sectors.
  • Maintain 2020 year-end FSSTI target of 3,370 (c.5.4% upside), however, we note that there is downside risk should the COVID-19 issue stretch beyond mid-20.

BUDGET 2020 – Lending a helping hand.

  • Singapore’s Deputy Prime Minister (DPM), Mr Heng Swee Keat delivered the 2020 Budget yesterday. Key highlights from his speech include:
    1. Relief from COVID-19 outbreak. The government plans to spend S$6.4b on various initiatives to assist the economy as well as target key sectors affected by the outbreak, ie aviation, retail, tourism & hospitality. These include various tax rebates, allowance for faster write-downs of investments in plant & equipment and renovation and refurbishment, increase in size of government-backed working capital loans to SMEs and rental waivers.
    2. Goods & Services Tax (GST). The higher GST rate of 9% will not take effect in 2021 and thus the 7% rate will remain in 2021, however the DPM ,stated that the government cannot put off the increase indefinitely as the COVID-19 outbreak has underlined the importance for the government to have recurrent sources of revenue, especially for healthcare. He stated that the GST increase will need to happen by 2025 and the government will provide a S$6b assurance package to cushion the impact when the GST increase comes along.
    3. Transformation to continue. The DPM noted that Singapore needed to be cognisant of four structural shifts in the future: The decline in support for globalisation, the shift in global economic weight towards Asia, the rapid advancement of technology and the country’s transition toward an ageing society. These four issues were addressed in the budget via S$8.4b in spending programmes to assist the country in its transformation.
    4. Climate change initiatives. Following on from the Prime Minister’s National Day Rally speech in Aug 19, the budget outlined various medium to long-term measures to tackle this issue. Much of the measures were focused on electric vehicles (EVs) with the two key items being the phasing out of the use of internal combustion engine vehicles in Singapore by 2040, and expanding the public infrastructure for charging EVs from the current 1,600 charging points to 28,000 by 2030 implying a 33% CAGR. In addition, to prepare Singapore for rising sea levels, the budget allocated S$5b for a new coastal protection fund that the DPM stated would be topped up in the future.
    5. In 2019, Singapore saw a budget deficit of S$1.65b (0.3% of GDP), less than the deficit of S$3.48b forecasted a year ago. In 2020, the budget will remain expansionary, with total expenditure projected to rise 7.0% y-o-y to S$83.61b and an overall budget deficit of S$10.95b or 2.1% of GDP.


  • Jobs Support Scheme (JSS). In order to retain local workers, the JSS will allow employers to receive an 8% cash grant on the gross monthly wages of each local employee (Singapore Citizens and Permanent Residents only) on their Central Provident Fund (CPF) payroll for the months of October 19 to December 19, subject to a monthly wage cap of S$3,600 per employee.
  • Enhancement of the Wage Credit Scheme (WCS) where the government will co-fund wage increases for Singaporeans up to a gross monthly wage of S$5,000, up from the previous $4000. The co-funding will be 20% for 2019, and 15% for 2020.
  • Economy-wide support to help corporates with cash flow. These measures include
    1. corporate income tax rebate of 25% of tax payable capped at S$15,000 per company,
    2. allowing enterprises to accelerate the write-down of plant and machinery to two years,
    3. raising the maximum working capital loan quantum for SMEs to S$600,000 from S$300,000 and increase the government’s risk-share to 80% to encourage financial institutions to support viable SMEs, and
    4. property tax rebate of between 10-30% for the integrated resorts, Changi airport, cruise and ferry terminals, exhibition centres and hotels and serviced apartments.


  • Deferring GST rate increase in 2021. GST rate increase will not take effect in 2021 and will remain at 7%.
  • Provision of S$6b Assurance Package when the GST rate is raised. Every adult Singaporean will receive a cash payout of $700-1,600 over five years.
  • Continued investment in SkillsFuture. Provision of a one-off SkillsFuture Credit top-up of $500 for every Singaporean aged 25 years and above. An additional special SkillsFuture Credit top-up of $500 to every Singaporean aged 40 to 60 will also be provided in 2020.
  • Support for education. An increase in the share of government-supported pre-school places from just over 50% today, to 80% by 2025. The government will also enhance the Ministry of Education Financial Assistance Scheme by raising the annual bursary quantum for pre-university students from $900 to $1,000.
  • Care and Support Package for households amounting to S$1.6b. All Singaporeans aged 21 and above in 2020 will receive a one-off cash payout of $100-300, depending on their income
  • Daily-expenses support for lower-income Singaporeans. Support for lower income Singaporeans through grocery vouchers worth $100 each year in 2020 and 2021 will be available for use at major supermarkets.
  • Senior Care. Introduction of Matched Retirement Savings Scheme from 2021 to 2025 for seniors with lower CPF savings. The government will match every dollar of cash top-up made to CPF Retirement Account, up to an annual cap of $600, and also raise quarterly cash payouts for the Silver Support scheme.



  • Aviation: Rebates for six months are as follows: 100% parking-charge rebate for all flights, 10% landing-fee rebates for scheduled flights to and from Southeast Asia and for all scheduled freighter flights, 50% regulatory fee rebates on Certificate of Airworthiness, 6- month waiver of a planned 1% increase in landing, parking and aerobridge (LPA) that is scheduled to take effect from 1 Apr 20, and 10% rental rebates for cargo agents. In addition, airlines which operated flights from China to Singapore before COVID-19, will receive landing credits while those that operated flights on the sector post COVID-19 will receive 100% landing fee rebates
  • Singapore Airlines (SGX:C6L) - Reduction in landing and parking charges along with rebates could amount to $20m- 25m in cost savings, while cost savings from Jobs Saving Support Scheme could amount to a similar quantum.
  • SIA Engineering (SGX:S59) is likely to receive rental rebates for premises at Changi.
  • SATS LTD. (SGX:S58) will benefit from the Jobs Support Scheme as wage cost accounts for 50% of opex. Budget 2020 did not specify a reduction in licensing fees, but allowed for a 10% rebate on rental fees. SATS will also benefit from a 15% reduction in property tax rebate on the Marina Bay Cruise Centre.
  • ST Engineering (SGX:S63) - While the Jobs Support Scheme is likely to lead to savings on labour cost out of Singapore, ST Marine will likely be impacted by a reduction in the foreign worker sub-Dependency Ratio Ceiling (DRC) in 2021, when the ratio would be reduced from 20% to 18% and subsequently to 15% by Jan 23.


  • S Pass Sub-DRC will be reduced from 20% to 15% while foreign worker levy remains the same. We view that it to be largely neutral for the construction sector as work-permit holders constitute a larger proportion of foreign workers compared to S Pass holders.


  • HDB to provide half month worth of rental waivers to commercial tenants. For service-related companies under our coverage, Koufu (SGX:VL6) and Sheng Siong (SGX:OV8) leases a significant number of HDB shop units. While we estimate roughly 50% of Koufu’s outlets are located around HDB estates, we think the cost savings from the rental waiver will potentially be passed on to its stall tenants. For Sheng Siong, we estimate > 70% of its stores are HDB units, some of which are rented from private landlords. We estimate 1.5- 2.1% positive earnings impact, based on an assumption that 35-50% of total rent is paid to HDB. That said, we reckon most of the savings could be used to cushion the increase in input prices should there be supply chain distributions resulting from COVID-19, thus limiting the impact on earnings.
  • JSS to help companies that are labour intensive with low wage hires. We believe that the scheme could help companies such as Koufu, Jumbo Group (SGX:42R) and Sheng Siong. Labour cost accounts for more than 10% of revenue for the former two while employee-benefit costs forms 30-31% of Jumbo Group’s revenue.
  • Based on the DRC for the services sector, we estimate local hires command 60-70% of its total workforce. The scheme is limited to local hires and is also subjected to a wage cap of S$3,600, which is approximately the average salary or lower for most of the labor-intensive jobs in the sector. Our back-of-the-envelope calculation indicates cost savings of S$0.5-1.5m from the JSS scheme, as well the enhancement of the Wage Credit Scheme. This translates to a positive earnings impact of roughly 3.6% for Koufu and Jumbo Group, and 1.8% for Sheng Siong.


  • Property tax rebate of 10%. Singapore’s integrated resorts will be granted a 10% property tax rebate for 2020. We opine that this would be marginally positive to Resort World Sentosa’s property tax with savings estimated at about S$1m-2m, or < 1% of net profit on our estimates.


  • Largely status quo for ComfortDelGro (SGX:C52) in near term, in our view. A rebate (up to 45% on the Additional Registration Fee (ARF), capped at $20,000) on purchases on fully electric taxis as well as a wide deployment of chargers is a more aggressive push for fully electric vehicles. Currently, electric vehicle taxis only make up a small proportion, about 0.7% of the total taxi population in 2019, mainly undertaken by HDT Taxi. A lower road tax for hybrid cars may be a positive, albeit on a marginal extent.

REITs (OVERWEIGHT – unchanged)

  • Retail REITs will benefit from property tax rebate of 15% for their retail and F&B spaces. Most retail REITs intend to pass the 15% property tax rebate to their tenants in the form of rent reduction. Many retail REITs are also working on other targeted measures to help their tenants tide through this difficult period. We do not expect any material impact on distributable income for retail REITs. Maintain BUY for CapitaLand Mall Trust (SGX:C38U) (Target: S$2.88) and Frasers Centrepoint Trust (SGX:J69U) (Target: S$3.05).
  • Hospitality REITs will benefit from property tax rebate of 30%. The biggest beneficiary is Far East Hospitality Trust (SGX:Q5T), a pure play on Singapore’s hospitality sector which could see its 2020F DPU increase by 4% from 2.73 S cents to 2.84 S cents. However, 2021F DPU is unchanged at 3.90 S cents. Maintain HOLD (Target: S$0.65).


  • In order to regulate the inflow of foreign workers, the government has lowered the S-Pass sub-DRC for the construction, process and marine sectors in two phases: phase one will see the DRC decline from 20% to 18% in 2021, and phase two will see this 18% further decline to 15% in 2023.
  • Keppel Corporation (SGX:BN4) (BUY/ Target: S$7.75) and Sembcorp Marine (SGX:S51) (HOLD/Fair Value: S$1.40) have notably continued their efforts to raise productivity and efficiency in the past few years to offset higher labour costs to mitigate the adverse impact of Singapore's long-term restrictions on foreign labour. In our view, the lower S Pass sub-DRC will have a limited negative impact on Keppel Corporation and Sembcorp Marine.


  • Providing relief. Without neglecting the medium to longer term challenges that an open economy like Singapore will face, Budget 2020 was very much about providing relief to households as well as those sectors that have been buffeted by the COVID-19 outbreak: aviation, consumer staples, F&B, hospitality, and retail. Lower tourist arrivals as well as government and corporate measures to limit crowds (and thus the spread of the coronavirus) have collectively taken a bite out of consumer spending. We believe that the measures announced today are adequate but could be tweaked in the coming months should things worsen.
  • Key stocks impacted by Budget 2020. In our coverage, companies such as Singapore Airlines (SGX:C6L), SATS (SGX:S58) and SIA Engineering (SGX:S59) in the aviation sector and Koufu (SGX:VL6) and Sheng Siong Group (SGX:OV8) in the consumer staples sectors are key beneficiaries from Budget 2020. Companies that are marginally negatively affected by the lower S Pass sub-DRC ratios include Keppel Corporation (SGX:BN4), Sembcorp Marine (SGX:S51) and ST Engineering (SGX:S63).
  • Weak GDP growth forecasted for 2020. We note that UOB Global Economics Markets Research (UOB GEMR) downgraded its NODX growth outlook to -1.0% y-o-y in 2020, down from a previous +1.5% outlook made in Dec 19. UOB GEMR highlighted downside risks to its newly-formed NODX outlook should the COVID-19 outbreak be more widespread, severe and protracted than expected. The downgrade is also expected to drag overall economic growth, where it now expects Singapore’s GDP to grow by merely 0.5% y-o-y in 2020, down from its previous forecast range of between 0.5–1.0%.

Singapore Research UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-02-19
SGX Stock Analyst Report BUY MAINTAIN BUY 7.750 SAME 7.750