Singapore Market Focus ~ Fortitude Budget - DBS Research 2020-05-27: A Determined COVID Response

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SINGAPORE TECH ENGINEERING LTD (SGX:S63) COMFORTDELGRO CORPORATION LTD (SGX:C52)

Singapore Market Focus ~ Fortitude Budget - A Determined COVID Response

• S$33bn Fortitude Budget lifts Singapore’s COVID-19 total budget response to S$92.9bn.
• Job Support Scheme enhancements will help ST Engineering (SGX:S63), ComfortDelGro (SGX:C52), Keppel Corp (SGX:BN4), Sembcorp Marine (SGX:S51).
• Extension of foreign worker levy waiver/rebate helps shipyards Keppel Corp (SGX:BN4) and Sembcorp Marine (SGX:S51).
• Commercial, industrial and office REITs negatively impacted by upcoming bill mandating rental waivers.

S$92.9bn response to COVID-19

• The Singapore government announced the S$33bn Fortitude Budget, aimed to support businesses costs, help workers stay employed, and assist companies to transform through digitalisation.
• Together with the earlier Unity, Resilience and Solidarity Budgets, the Singapore government has committed S$92.9bn or nearly 20% of GDP in response to the COVID-19 crisis.
  • Singapore Budget 2020 - DBS Research 2020-02-19: Relief, Resilience, Recovery.
  • Singapore Supplementary Budget - DBS Research 2020-03-27: Unprecedented Anti-Viral Boost.
  • Singapore Market Focus - DBS Research 2020-04-07: Standing In Solidarity.
• Up to S$52bn will be drawn from past reserves in this financial year.

Job Support Scheme enhancements

• This will be extended by one month for a total of 10 months of wage support. Firms that are not allowed to re-open on-site after 1 June will get a wage subsidy of 75% of first S$4.6k till Aug 2020.
• Wage support will increase to 75% (previously 25%) for sectors severely impacted by the Circuit Breaker such as aerospace (ST Engineering (SGX:S63)) and construction.
• Wage support has also been lifted to 50% (previously 25%) for sectors such as food services, rail operators (ComfortDelGro (SGX:C52)), marine & offshore (Keppel Corp (SGX:BN4), Sembcorp Marine (SGX:S51)), cinema operators (mm2 Asia (SGX:1B0)) and retail (Retail REITs).

Improving cashflow and lowering cost

• Foreign worker waivers and rebates will be extended for up to 2 months for businesses that must remain closed after the Circuit Breaker is lifted such as marine & offshore (Keppel Corp (SGX:BN4), Sembcorp Marine (SGX:S51)) and construction. This amounts to 100% waiver with S$750 rebate for June and 50% waiver with S$375 rebate for July.
• There is also rental relief for qualifying SME tenants ( < S$100m annual revenue) to receive cash grants equivalent to 0.8 month’s of rent for qualifying commercial properties and 0.64 month’s rent for qualifying industrial and office properties.

Negative for industrial and office REITs

• An upcoming bill may mandate that landlords grant 4 months rental waivers, shared equally between the Government and landlords, to qualifying SME tenants of commercial properties who have suffered a significant revenue drop – this affects retail REITs. SME tenants of industrial and office properties will be given 2 months relief. This is negative for industrial and office REITs (e.g. Ascendas REIT (SGX:A17U), Mapletree Industrial Trust (SGX:ME8U), Mapletree Logistics Trust (SGX:M44U), Suntec REIT (SGX:T82U), OUE Commercial REIT (SGX:TS0U)).
• See also previous S-REITs report: Singapore REITs - DBS Research 2020-05-11: The Next Big Test For S-REITs.

Straits Times Index up a modest 43pts since Resilience Budget. See chart in PDF report attached below.

Kee Yan YEO CMT DBS Group Research | Janice CHUA DBS Research | https://www.dbsvickers.com/ 2020-05-27

SGX Stock Analyst Report HOLD MAINTAIN HOLD 3.400 SAME 3.400

HOLD MAINTAIN HOLD 1.550 SAME 1.550