Singapore Strategy - CGS-CIMB Research 2020-05-27: #4 Help Package ~ More Cushioning

GENTING SINGAPORE LIMITED (SGX:G13) SATS LTD. (SGX:S58) SINGAPORE TECH ENGINEERING LTD (SGX:S63)

Singapore Strategy - #4 Help Package ~ More Cushioning

We were positively surprised by the government’s generous new S$33bn help package. Job Support Scheme (+S$2.9bn) to be extended by 1 month (10 months total).
Job Support Scheme up from 25% to 75% for aerospace and construction, 50% for retail and offshore & marine. Material incremental effects for ST Engineerin, SIA Engineering, Keppel Corp and Sembcorp Marine.

A new bill in Jun 20 will help qualifying SMEs — 4 months of rental relief equally shared by landlords and government. Slight negative for retail REITS.

Anticipating a worse recession (with the downward revision of Singapore’s GDP growth forecast to -7 to -4% from -1 to -4% previously), the government announced the fourth budget to support the economy. The new S$33bn help package includes a S$13bn contingency fund, and will further draw S$31bn from the country’s reserves (total drawdown YTD: S$52bn).
Total COVID-19-related stimulus stands at S$92.9bn, or 20% of GDP. The Budget deficit for FY20 will now be S$74.3bn (15.4% of GDP).

The unemployment rate rose to 3.3% in Mar 20, the highest since 2009. Therefore, the Job Support Scheme (JSS) enhancement of S$2.9bn is critical, in our view. All sectors will get an extra month of wage co-funding up to Oct 2020, bringing total JSS to S$23.5bn.
Firms that cannot resume operations immediately (e.g. retail outlets, gym/fitness studios, cinemas etc), will continue to receive 75% Job Support Scheme until Aug 2020, or when they are allowed to re-open.
There are refinements of classification of sector qualification for Job Support Scheme, which are incrementally positive for aerospace and construction (wage cost-sharing from 25% to 75%), and retail and offshore & marine (25% to 50%).
We highlight SGX listed companies that could receive Job Support Scheme of > 5% of their CY20 earnings —
- ST Engineering (SGX:S63) (total JSS of S$206m),
- Genting Singapore (SGX:G13) (S$111m),
- SATS (SGX:S58) (S$140m),
- ComfortDelGro (SGX:C52) (S$128m),
- SIA Engineering (SGX:S59) (S$115m),
- Sembcorp Marine (SGX:S51) (S$99m),
- Keppel Corp (SGX:BN4) (S$96m),
- SPH (SGX:T39) (S$37m),
- Sheng Siong (SGX:OV8) (S$19m),
- SingPost (SGX:S08) (S$10m),
- BRC Asia (SGX:BEC) (S$5.9m),
- Boustead Project (SGX:AVM) (S$3.3m),
- Yongnam (SGX:AXB) (S$8m),
- Jumbo Group (SGX:42R) (S$6.6m).
See attached PDF report below for details.

A S$2bn cash grant to be disbursed from end-July 2020 for qualifying SME tenants (turnover not more than S$100m p.a.) in commercial properties (0.8-month rental rebate) and offices and industrial properties (0.64 months). Landlords are required to pass this rebate on to their SME tenants. Together with the property tax rebate announced earlier, retail tenants will get about 2 months of rental relief.
A new bill will also be passed in Jun 20 to mandate landlords to grant four months of rental waiver to SME tenants that suffered significant revenue drops in the past few months. This will be equally shared between the government and landlords. If passed, we think the incremental impact could be less than 2 months of rental rebates, as most retail REITs have announced 1-1.8 months of out-of-pocket rental rebates so far.
Mapletree Commercial Trust (SGX:N2IU) has announced 2.5 months of out-of-pocket rental rebates. It is neutral to slightly negative for office and industrial landlords as tenants in essential services remained in operation during the circuit breaker period.

From the help announced, we deduce that the economy could enter into phase 2 of re-opening by Aug (phase 1: 2 Jun). Generous government stimulus is likely to prevent the FSSTI sliding to its previous crisis levels.
Our FSSTI target on 12x CY21F P/E, -2 s.d. of its mean since 2008.