Singapore 2020 Supplementary Budget - UOB Kay Hian 2020-03-27: Providing More Pain Relief

Singapore Strategy - UOB Kay Hian Research | SGinvestors.io SINGAPORE AIRLINES LTD (SGX:C6L) SATS LTD. (SGX:S58)

Singapore 2020 Supplementary Budget - Providing More Pain Relief

  • The Supplementary Budget 2020 is very much about assisting sectors that have been, and will continue to be, hard hit by the COVID-19 outbreak: aviation, F&B and hospitality.
  • With an eye on the economic damage and savings erosion that could take place if social distancing and stay-home measures persist, the budget aims to provide generous support to lower-income households and individuals.
  • Key beneficiaries include Singapore Airlines (SGX:C6L) and SATS (SGX:S58).
  • The budget is also mildly positive for the hospitality sector.



Helping Singapore with S$48b in a Supplementary Budget.

  • Post the Singapore Budget 2020 announced on 18 Feb 20, Singapore’s Deputy Prime Minister (DPM), Mr Heng Swee Keat, announced that the government would use the country’s reserves for only the second time in history and allocate S$48b in a Supplementary Budget yesterday to aid an economy that has been hurt by the negative impact of the COVID-19 outbreak. Together with the S$6.4b in the initial budget, Singapore’s spending to assist the economy will total S$55b, or 11% of GDP.
  • Key highlights from his speech include:

Helping employers and employees.

  • Helping those that are currently employed, the government plans to spend S$15.1b on various job and wage initiatives to support more than 1.9m local employees. Notably, these initiatives specifically target sectors that are particularly hard hit by the COVID-19 outbreak, namely the F&B, aviation and tourism sectors. This is more than twice the level of support provided during the 2008 Global Financial Crisis.
  • Another notable feature of this Supplementary Budget was the assistance provided to the self-employed, lower-income workers, job seekers and those unemployed.

Helping businesses.

  • Apart from flowing out the payments under the wage support scheme more quickly, the government will also support businesses by allowing them to defer tax payments for three months, increasing property tax rebates (with hotels, serviced apartments, tourist attractions, shops, and restaurants paying no property tax), rental waivers, freezing of all government charges and fees for a year, and enhancing financing schemes to ensure adequate credit is available to companies.
  • As above, the government has particularly targeted sectors that have been hard hit by COVID-19.

Continuing to look ahead.

  • In order to build capabilities for the eventual recovery, S$1.9b was set aside to help businesses build long-term capabilities, eg matching S$1 for every S$2 raised by trade associations and chambers or business groups for qualifying initiatives.

Drawing S$17b from its reserves.

  • In an unprecedented move for unprecedented times, the Singapore Government will draw S$17b from its reserves to help fund the Supplementary Budget – this will raise the overall budget deficit for 2020 to a historically high S$39.2b, or 7.9% of GDP.


KEY MEASURES: BUSINESSES


Enhance and extend the Jobs Support Scheme (JSS).

  • Costing the Government S$15.1b, it will co-fund 25% of the wages for every local worker (previously 8%) but notably, the sectors that have been hit hardest by COVID-19 will receive higher support: 50% for food services and 75% for aviation and tourism.
  • In addition, the monthly qualifying wage ceiling was raised from S$3,600 to S$4,600, and the scheme will be extended for another two quarters until end-20.

Looking after COVID-19-affected sectors.

  • The Supplementary Budget provided a separate S$350m enhanced aviation-support package to fund measures such as rebates on landing and parking charges, and rental relief for airlines, ground handlers and cargo agents.
  • In addition, other tourism-related industries were catered to via enhanced versions of the Jobs Support Scheme.

Deferment of income tax.

  • The Singapore Government announced that it would automatically defer income tax payments for companies and the self-employed for three months.

Increasing the rebate on property taxes while targeted sectors will not pay any property tax in 2020.

  • The property tax rebate will be enhanced with a higher amount and to cover more properties, notably commercial properties badly affected by COVID-19, eg hotels, serviced apartments, tourist attractions, shops and restaurants, will pay no property tax for 2020.
  • For businesses in other non-residential properties, such as offices and industrial properties, a property tax rebate of 30% will be granted.

Rental waivers.

  • During the Supplementary Budget speech, Mr Heng noted that the government will lead by example with the National Environment Agency (NEA) giving stallholders in hawker centres managed by NEA or NEA-appointed operators a three-month rental waiver, up from the one-month waiver announced last month.

Ensuring credit lines are open.

  • Various financing schemes, such as the Enterprise Financing Scheme-SME Working Capital Loan, Loan Insurance Scheme and the Temporary Bridging Loan Programme, will be enhanced and the Monetary Authority of Singapore will work with banks and insurers to arrive at the best form of assistance for businesses and individuals with regards to their loan obligations and insurance premium payments.


KEY MEASURES: INDIVIDUALS


Supporting self-employed and low-income persons.

  • Costing S$1.2b, a new Self- Employed Person Income Relief Scheme (SIRS) will be set up where eligible self-employed persons will receive S$1,000 a month for nine months. With regards to low income persons, the Supplementary Budget increases the payout received by Workfare recipients to $3,000 each.

Ramping up the Care and Support Package

  • Ramping up the Care and Support Package (announced in Budget 2020) to around S$4.6b, which includes a tripling of the cash payout for all adult Singaporeans to between S$300-900, as well as that given to parents with young children, while parents with at least one child below 20 years old would receive S$300 instead of $100.
  • To help needy Singaporeans with daily expenses, especially in the cost of food, grocery vouchers given to them this year will also be tripled to S$300, and an additional $100 in vouchers in 2021.

Government fees and charges frozen for the next 12 months.

  • The Supplementary Budget allows for a freeze on all government fees and charges for a year until 31 Mar 21, while all loan repayment and interest charges have been suspended for a year for graduates who have taken a government loan for their university and polytechnic studies.


SECTOR IMPACT



AVIATION (UNDERWEIGHT – Unchanged)


Key benefit from the Supplementary Budget is the 75% wage support



CONSUMER/F&B (MARKET WEIGHT – Unchanged)


Sector expected to remain negative despite wage support.

  • Measures directly related to the sector include the increased co-funding of wages and enhanced rental waiver. We believe the increased co-funding of wages as part of the job support scheme from 8% to 25% will help low wage and labour intensive industry, especially F&B service companies (licensed food shops and food stalls, including hawker stalls) which will enjoy a higher co-funding of 50%.
  • For F&B service companies, staff cost accounts for approximately 17% and 30% of Koufu (SGX:VL6)’s and Jumbo Group (SGX:42R)’s revenues respectively. Based on the dependency ratio ceiling (DRC) for the services sector, we estimate local hires command approximately 70% of its total workforce. Based on these assumptions, our back-of-envelope calculations indicates an additional (from last round) cash grant of roughly S$7.0m (25% of 2019 earnings) and S$3.5m (30% of 2019 earnings) for Koufu and Jumbo Group respectively.
  • Although the cost savings does help support earnings, we think it acts more as a cushion and we still expect a net negative impact to earnings from COVID-19, given that the situation has deteriorated and additional travel restrictions have been put in place.

Rental waiver to cushion higher costs.

  • In addition, commercial tenants in government-owned facilities who qualified for the half a month’s worth of rental waiver (announced in Budget 2020) will now get two months. We believe that Sheng Siong (SGX:OV8) and Koufu will be eligible given that both the companies lease a significant number of HDB shop units. Given that Koufu would likely have to pass on some of the cost savings to stall tenants in coffee shops and food courts, the main beneficiary of the scheme would be Sheng Siong, in our view.
  • Our back-of-envelope calculations indicate c.S$2.4m (3.2% of earnings) for the 1.5 months additional waiver. Further, we estimate Sheng Siong would also receive an additional (from last round) cash grant of S$6m-6.5m, or 7.9-8.6% of 2019 earnings for the enhanced JSS. That said, these cost savings could be used to cushion the potential increase in input prices from supply chain disruptions.


GAMING (MARKET WEIGHT – Unchanged)


Enhanced property tax rebate of 60% for 2020.

  • From the previously announced Budget 2020 where integrated resorts will be granted a 10% property tax rebate, this has been enhanced to a 60% rebate in the Supplementary Budget. We believe that this would be marginally positive to Resort World Sentosa’s property tax, however, the potential tax rebate would unlikely be significant as it is modest compared to Genting Singapore (SGX:G13)’s earnings base.

Income tax payment deferment.

  • No material impact given that Genting Singapore’ net cash is lush at S$3.95b (or S$0.33/share) and it does not have cashflow issues for income tax payment.


LAND TRANSPORT (MARKET WEIGHT – Unchanged)


Drivers first.

  • A second tranche of Point-To-Point (P2P) Support package was announced, primarily supporting drivers. Drivers would receive relief of S$300 per vehicle per month till Sep 20.
  • For ComfortDelGro (SGX:C52), the group had earlier announced further relief for an additional $10 daily rental relief, added on to its existing daily rental cuts of $16.50, with these current cuts extending until end-Apr 20. We estimate this to cost approximately S$7m-10m for ComfortDelGro. The government will waive P2P operator-licence fee for another six months though we think the cost savings is likely marginal.

Easing fleet size down.

  • The government will also provide up to $2,200 in special relief for each unhired taxi, though operators are strongly encouraged to pass on cost savings to drivers, such as through rental reductions and waiver of early return contract breakage costs. The government is also providing a one-time waiver of $100 outward conversion fee for private hire car owners to enjoy lower insurance premiums, easing transition to other jobs. These appear to ease fleet supply down, dealing with the demand shock in which P2P drivers have seen a sustained drop in ridership of over 20%.
  • All in all, ComfortDelGro’s taxi segment is still under pressure from the prolonged virus outbreak.


REITs (OVERWEIGHT – Unchanged)


No property tax to be paid in 2020.

  • Qualifying properties, such as hotels, serviced residences, retail shops and restaurants, will pay no property tax in 2020. Previously, property tax rebates were set at 15% for retail shops and restaurants and 30% for hotels and serviced residences.
  • In addition, the government has also granted property tax rebate of 30% for offices and industrial properties.

Rebates will be neutral to S-REITs.

  • The government has urged landlords to fully pass the rebates on to tenants, which is arguably the group suffering the brunt of the COVID-19 asures to alleviate the hardship experienced by retailers and F&B operators have a neutral impact on S-REITs, in our view.

Hospitality REITs to benefit from JSS.

  • Staffing is a significant fixed cost which is hard to eliminate as hotel occupancies crater in the face of COVID-19 travel restrictions. Under JSS, for every local employee payroll, hotel operators will receive support for 75% of the first S$4,600 in gross monthly wages (incl. 25% base support).
  • S-REITs, which have higher exposure to Singapore hospitality assets, and under managed contracts (ie take part in operating risk) will benefit most. In this regard, CDL Hospitality Trusts (SGX:J85) (62% SG NPI) and Far East Hospitality Trust (SGX:Q5T) (100% SG NPI) are expected to benefit more from the scheme compared to Ascott Residence Trust (SGX:HMN) (10% FY19 GP).


CONCLUSION


Providing more pain relief.

  • The Supplementary Budget 2020 was very much about assisting the sectors that have been, and will continue to be, hard hit by the COVID-19 outbreak: Aviation, F&B, and hospitality. With an eye on the economic damage and savings erosion that could take place if social distancing and stay-home measures persist, the budget provides generous support to lower-income households and individuals, taking into account the increased labour participation in the gig economy and the self-employed.
  • At the end of his Supplementary Budget speech, Mr Heng noted that the government “does not rule out further stimulus and rescue packages as the situation remains highly fluid and uncertain.”

Key stocks impacted by the Supplementary Budget 2020.

  • In our coverage, companies such as Singapore Airlines (SGX:C6L) and SATS (SGX:S58) in the aviation sector will be the key beneficiaries while consumer and F&B stocks such as Koufu (SGX:VL6)’s and Sheng Siong (SGX:OV8) will have the negative effects of the COVID-19 outbreak cushioned somewhat by rental waivers and cost savings from the property-tax rebate being passed on by their landlords.

Four quarters of y-o-y contraction in 2020.

  • Yesterday, Singapore reported advanced GDP estimates of -2.2% y-o-y and below market expectations of -1.4% y-o-y. On a q-o-q seasonally adjusted basis, Singapore’s GDP fell 10.6%. This resulted in Singapore’s Ministry of Trade and Industry further downgrading Singapore’s GDP growth forecast for 2020 to between -4% and -1%, the worst since Singapore’s Independence in 1965.
  • UOB Global Economics and Market Research subsequently downgraded Singapore’s full-year GDP growth in 2020 to -2.5% y-o-y with downside risks, down from its previous estimate of +0.5% y-o-y.
  • On a quarterly basis, UOB GEMR forecasts four consecutive quarters of y-o-y contraction in 2020: 1Q20 (-2.2%), 2Q20 (-3.9%), 3Q20 (-2.8%) and 4Q20 (-1.2%), before seeing a recovery to +1.5% in 2021.
  • For UOBKH's top buys, see previous report: Singapore Strategy - UOB Kay Hian 2020-03-16: COVID-19 Impact.





Singapore Research Team UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-03-27
SGX Stock Analyst Report HOLD MAINTAIN HOLD 6.600 SAME 6.600
BUY UPGRADE HOLD 3.96 DOWN 4.80



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