Solidarity Budget - UOB Kay Hian 2020-04-07: An Unprecedented Third Budget In 8 Weeks

Solidarity Budget - UOB Kay Hian Research | SGinvestors.io DBS GROUP HOLDINGS LTD (SGX:D05) OVERSEA-CHINESE BANKING CORP (SGX:O39)

Solidarity Budget - An Unprecedented Third Budget In Eight Weeks

  • The Singapore government responded in a faster-than-expected a manner to deal with the negative ramifications from the “circuit-breaker” measures (7 Apr 20 to 4 May 20). Consumer demand in Singapore will invariably be affected and this second supplementary budget worth S$5.1b acknowledges that there will be at least one month of pain and the budgetary measures largely tries to keep as many people employed as possible.

An unprecedented third budget in eight weeks.

  • Unprecedented times call for unprecedented measures and the Singapore Government has tabled a second supplementary budget (aka the ‘Solidarity Budget’) worth S$5.1b in order to accelerate support to business, households and individuals. This comprises S$4.0b in support for businesses and workers, as well as S$1.1b for cash payments to every Singaporean adult.
  • This budget comes hot on the heels of ‘circuit breaker’ measures announced on 3 Apr 20 to stem the tide of COVID-19 infections which have increased markedly in the past few weeks.

A hefty 12% of GDP.

  • See previous report: Singapore 2020 Supplementary Budget - UOB Kay Hian 2020-03-27: Providing More Pain Relief.
  • With the announcement of a second supplementary budget, and the third one from the Singapore government in two months, the government will be spending S$59.9b in total, equivalent to 12% of Singapore’s GDP. As a result, 2020 will see the government incur a S$44.3b deficit, representing 8.9% of GDP compared to 2019 which saw a S$1.7b deficit or 0.3% of GDP.


  • Wage offset expanded to all firms, not just targeting aviation, hospitality and tourism sectors. The Solidarity Budget expands the 75% wage offset to all firms which we believe stems from a recognition that, in the last week or so, economic conditions have deteriorated even more and therefore the broader economy needs more stimulus and protection.
  • To recap, the Singapore Government will now pay 75% of the first S$4,600 of monthly wages to be paid in Apr 20 for every local worker in employment. From May 20 onwards however, wage support levels will be differentiated by sector as per the original measures in the first supplementary budget.
  • Waiver of monthly Foreign Worker Levy (FWL) due in Apr 20. The government announced that FWL due in the month of April will be waived; in addition, there will be a rebate of S$750 in Apr 20 from levies paid this year for each Work Permit or S Pass holder.
  • Property-related measures. The government will introduce the COVID-19 (Temporary Measures) Bill on 7 Apr 20 with two key measures in mind. As announced in the second Supplementary Budget, up to 100% of property tax payable in 2020 will be rebated for non-residential properties. The bill:
    1. aims to ensure that non-residential property owners pass through the property tax rebate so that tenants benefit from this measure, and
    2. allows businesses and individuals to defer certain contractual obligations, such as paying rent, “for a period”.
  • In addition, the government will enhance rental waivers by increasing rental waivers from 0.5 month to 1 month; this will apply to for industrial, office, and agricultural tenants of Government agencies.
  • Helping businesses by enhancing financing support. The government announced that it would increase its share of loan risk from 80% to 90% for loans initiated from 8 Apr 20 till 31 Mar 21. These are for loans under the Temporary Bridging Loan Program, the Enterprise ncing Scheme - Working Capital Loan and the Enterprise Financing Scheme - Trade Loan.


  • More cash for Singaporean adults over 21 years of age. With this Solidarity Budget, the government will be distributing more cash up-front with every Singaporean adult getting S$600. Importantly, this will be credited into bank accounts by 14 Apr 20 or issued by cheques starting on 30 Apr 20 instead of the original Aug 20 timeline. In our view, these cash handouts are a recognition that many households will be going through a difficult period during the one-month circuit-breaker period that starts tomorrow and tentatively ends on 4 May 20.
  • Broadening support for the self-employed sector. The Singapore Government announced enhancements to the Self-Employed Person (SEP) Income Relief Scheme with annual value threshold raised from S$13,000 to $21,000 to make this relief available to larger numbers of SEPs. In addition, the allowed the automatic inclusion of SEPs who also earn a small income from employment work.



  • Negligible gains for the sector except for ST Engineering. ST Engineering (SGX:S63) could be the biggest marginal beneficiary under the Solidarity Budget. The company did not benefit from the earlier wage support for the aviation sector.
  • With the Solidarity Budget, ST Engineering could save up to $45m-48m in costs arising from 75% of the S$4,600 one-month wage rebate. About 2/3 of its c.21,400 work force is estimated to be based in Singapore. The savings will flow directly to bottom line and could amount to 9% of initial estimated earnings for 2020.


  • The government has increased the its risk share of loans made under the Temporary Bridging Loan Program, the Enterprise Financing Scheme – SME Working Capital Loan and Enterprise Financing Scheme – Trade Loan from 80% to 90% for loans initiated from 8 Apr 20 until 31 Mar 21. This is in addition to the package of measures to support individuals and SMEs affected by the COVID-19 outbreak announced by the MAS on 31 Mar 20.
  • The government's risk share is already substantial at 80%. The increase in the government's risk share to 90% will incentivise banks to extend more loans to viable SMEs, so that they can successfully weather and sail through the COVID-19 outbreak.
  • Maintain BUY for DBS (SGX:D05) (Target: S$21.98) and OCBC (SGX:O39) (Target: S$10.36).


  • Marginal uplift from foreign worker levy, though the stop work order is a larger burden in our view. The waiver of the FWL for Apr 20 as well as a FWL rebate of $750 for each work permit and S Pass Holder may help to ease cash flow burden, especially for smaller players.
  • Suspension of non-essential construction works for a month would be a larger negative for BRC Asia (SGX:BEC) given its heavy volume-centric work.


  • Enhanced Jobs Support Schemes (JSS) and worker-levy rebates to help companies that are labour-intensive with low-wage hires. We believe that the scheme could help companies such as Jumbo Group (SGX:42R), Koufu (SGX:VL6) and Sheng Siong (SGX:OV8) that have businesses which are labour-intensive and have a largely local presence.
  • Based on the dependency ratio ceiling (DRC) for the services sector, we estimate local hires command 60-70% of its total workforce. To recap, during the earlier round of budget relief (Resilience Budget), we highlighted that Koufu and Jumbo Group would receive a cash grant of roughly S$7.0m (25% of 2019 earnings) and S$3.5m (30% of 2019 earnings) from the higher co-funding of 50% as part of the JSS while Sheng Siong would receive approximately S$6m-6.5m from a 25% co-funding. See previous report: Singapore 2020 Supplementary Budget - UOB Kay Hian 2020-03-27: Providing More Pain Relief.
  • With the recently announced Solidarity Budget, F&B services would gain an additional 25% of co-funding while Sheng Siong would enjoy an additional 50% for the month of April. Further, these companies would receive a FWL rebate of S$750 in Apr 20 from levies paid this year, for each Work Permit or S Pass holder as well as a FWL due in Apr 20.
  • Our back-of-the-envelope calculations indicate additional cost savings from both measures of S$1.1m, S$0.6m and S$3.5m for Koufu, Jumbo Group and Sheng Siong. While the budget relief does provide cost savings to companies, we still expect to see a negative impact from the one-month circuit breaker for F&B services companies. Full services restaurants like Jumbo Group are expected to take a more significant hit, in our view.


  • The Jobs Support Scheme and FWL are both largely insignificant as companies have a larger presence outside of Singapore. For EMS players within our coverage, those that have a manufacturing plant in Singapore include Venture Corp (SGX:V03), Fu Yu (SGX:F13) and Sunningdale Tech (SGX:BHQ). That said, a large portion of the group’s revenue is contributed from plants outside Singapore, namely Malaysia and PRC.
  • Business in Singapore contributes to 19%, 24% and 14% of revenue for Venture Corp, Fu Yu and Sunningdale Tech respectively. In 2018, only 20% of Sunningdale Tech’s permanent employees were contracted in Singapore. Based on the individual company’s geographical revenue portion and foreign worker DRC of up to 60%, our back-of-envelope calculations indicates cost savings of approximately S$3.5m, S$0.6m and S$0.8m for Venture Corp, Fu Yu and Sunningdale Tech respectively from the enhanced JSS and worker levy measures.
  • On the operational front, we note that most of the production should continue as they are involved in manufacturing of healthcare and essential products.


  • Neutral for ComfortDelGro. Cash payouts for self-employed taxi drivers may supplement driver’s income and help ease the decline in driver fleet, though that comes off the back of reduced trips during the circuit breaker period and multiple rounds of rental rebates for ComfortDelGro (SGX:C52), which will effectively put the taxi segment in the red for FY20.

REITs (OVERWEIGHT – Unchanged)

  • Singapore hospitality REITs to see further relief from foreign staffing costs, amid partial lockdown. Under the Solidarity Budget, hotel operators hiring foreigners can benefit from the waiver of monthly FWL due in April, as well as a FWL rebate of S$750 in April from levies paid this year, for each Work Permit, or S Pass holder. The relief is significant, given the traditionally high foreign manpower dependence (as high as 40% of total staff).
  • Staffing is also a significant fixed cost that is hard to eliminate in the face of declining hotel occupancies amid the partial lockdown as well as a loss in staycation guests.


  • Mild positive impact on Keppel and Sembcorp Marine. The waiver of the FWL for Apr 20 as well as the $750 for each work permit and S Pass holder will result in cost savings of less than S$1m for each company, based on our estimates.
  • The larger issue continues to be resumption of new orders from an industry that is just now dealing with the negative impact from the OPEC-Russia oil price war.


  • With newly-introduced one-month “circuit-breaker” measures, consumer demand in Singapore will take a further hit and the government has responded in a manner that was faster than expected. This second supplementary budget acknowledges that there will be at least one month of pain and the measures contained therein are largely trying to keep as many people employed as possible.
  • In his Parliamentary speech yesterday, DPM Heng Swee Keat stated that this is a ‘wait-and-see’ situation and that the Singapore Government is willing to do more if needed, and to make further draws on the reserves if necessary.

What happens after one month though?

  • One of the biggest economic tasks facing the government is rebooting small businesses once the COVID-19 outbreak is over. Clearly, we will need to see a flattening of the infection curve before financial markets can respond.
  • There is light at the end of the tunnel for Singapore: We have seen China’s rate of infection decline and Germany, Italy and Spain all appear to have peaked.
  • In our view, there is no averting a recession in 2020 but with the Singapore Government willing and able to use its considerable financial resources to the country’s benefit, we believe it will cushion the brunt of the pain in 2Q and hopefully allow the economy to recover a bit faster in 3Q20.

Adrian LOH UOB Kay Hian Research | Singapore Research Team UOB Kay Hian | https://research.uobkayhian.com/ 2020-04-07
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