Solidarity Budget - CGS-CIMB Research 2020-04-06: COVID-19 Rolling Relief Measures #3

Singapore Market Strategy - CGS-CIMB Research | SGinvestors.io SHENG SIONG GROUP LTD (SGX:OV8) SINGTEL (SGX:Z74) VENTURE CORPORATION LIMITED (SGX:V03)

Solidarity Budget - COVID-19 Rolling Relief Measures #3

  • Preserving jobs is the focus of the 3rd series of government measures, with Job Support Scheme (JSS) raised to 75% to all sectors for Apr.
  • With the 1-month circuit breaker measures starting 7 Apr, we do not rule out further cuts to Singapore’s 2020 GDP forecast from current 1-4% contraction.
  • FSSTI target of 2,050, based on CY21F P/E of 9.5x (average during GFC over Oct 08-Mar 09).
  • Top picks: Sheng Siong (SGX:OV8), Venture Corp (SGX:V03), SingTel (SGX:Z74), Keppel DC REIT (SGX:AJBU).



Highlights of solidarity budget

  • Anticipating a further hit to Singapore's economy from the month-long “Covid-19 Circuit Breaker” measures, the government announced a supplementary budget of S$5.1bn to tide the nation over this period, bringing total Covid-19 related stimulus to S$59.9bn or 12% of GDP. The government will
    1. subsidise 75% on the first S$4,600 of the monthly salary of each local employee in Apr;
    2. waive foreign worker levy due in Apr,
    3. provide foreign worker levy rebate of S$750;
    4. expand coverage of Self-employed Person Income Relief Scheme (SIRS);
    5. increase rental waiver for office, commercial, and agriculture tenants of government agencies from 0.5 month to one month;
    6. raise government risk-share of loans from 80% to 90%; and
    7. provide additional cash handouts of S$300 for all Singaporeans aged ≥21.
  • Payments for wage subsidies and cash handouts will also be brought forward. The stimulus will be funded by a drawdown from past reserves (S$4bn). Budget deficit to widen to S$44.3bn or 8.9% of GDP.


Rolling measures, rolling guidance

  • We believe that there could be more relief measures along the way if the situation does not improve after the 1-month circuit breaker, such as corporate tax rebates, cuts to Central Provident Fund (CPF) contribution by employers, and blanket moratorium for loans payments. We also do not rule out a downward revision on Singapore's GDP forecast from current 1-4% contraction.
  • Recall that during Global Financial Crisis (GFC), the GDP was revised downwards three times over Jan-Apr 2009, from -2 to +1% to a low of -6 to -9%.
  • We keep our FSSTI target of 2,050 based on 9.5x CY21F P/E, and expect 2020F earnings cuts in the upcoming results season. See chart in attached PDF report.


Very little help for landlords

  • Landlords, especially retail REITS, could be pressured by income vacuum and tighter cashflow from earlier announced rental relief packages as well as the two new bills (mandatory pass-through of 100% property tax rebate to tenants) and Covid-19 (Temporary Measures) offering temporary relief to businesses and individuals unable to fulfill contractual obligations.
  • The added 75% JSS for Apr could help (staff costs account for < 10% of total costs) but pressure remains from the potential income vacuum ahead.


Construction and yards help on foreign workers relief

  • As all companies benefit from the JSS, construction and yards could see more savings in Apr. In addition to waiving the monthly Foreign Worker Levy due in Apr, for each Work Permit or S Pass holder, there will be S$750 rebate from levies paid in 2020.
  • We estimate cost savings of S$2.0m for Yongnam (SGX:AXB), S$1.5m for BRC Asia (SGX:BEC), S$5.5m for Keppel Corp (SGX:BN4), and c.S$7m for Sembcorp Marine (SGX:S51).
  • See attached PDF report for more details on the 3rd Covid-19 related handout and impact on stocks.





LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-04-06
SGX Stock Analyst Report ADD MAINTAIN ADD 1.420 SAME 1.420
ADD MAINTAIN ADD 3.400 SAME 3.400
ADD MAINTAIN ADD 17.660 SAME 17.660



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