Market Focus - DBS Research 2021-02-17: Singapore Budget 2021 ~ More Shots In The Arm


Market Focus - Singapore Budget 2021 ~ More Shots In The Arm

A calibrated budget

  • Singapore Budget 2021 provides
    1. targeted support for sectors still struggling from the pandemic
    2. support for businesses to leverage on innovation and encourage overseas collaboration/expansion
    3. support for jobs and skills/talent development for the local workforce.
  • This includes a S$11bil COVID-19 Resilience package for pandemic relief and S$24bil for economic transformation over the next 3 years. An overall budget deficit of S$11bil (2.2% of GDP) is anticipated for FY21 that is within the fiscal tolerance limit. The budget deficit is much lower compared to the expected S$64.9bil figure for FY20 as the Singapore government keeps spending prudent for future generations.

Transforming businesses through innovation

  • The Singapore government will commit $24bil over the next 3 years to enable firms/workers to emerge stronger from the pandemic. There will be 3 platforms to help companies
    1. drive innovation ventures and provide co-funding to build new ventures
    2. increase the speed and scale of digital innovation
    3. catalyze cross-border collaboration between Singapore and major global innovation hubs.
  • The government is helping mature enterprises transform. S$1bil will be set aside to co-fund their adoption of digital solutions and new technologies such as AI and 5G. Another S$1bil will be available through equity investments to help large local enterprises transform and expand overseas.

Continued aid for aviation and tourism

  • The Jobs Support Scheme (JSS) has been extended for the Aviation, Aerospace and Tourism sectors to September 2021, albeit with reduced subsidies of between 10% - 30%.
  • A further S$870m has been dedicated to Aviation sector to invest in on-arrival testing and biosafety systems which will contribute to efforts in reviving passenger traffic to Singapore.

Our thoughts –

  • The JSS extension is estimated to provide relief in FY22 (Apr 2021 to Mar 2022) of
  • It will also provide savings of S$30m-40m for ST Engineering (SGX:S63) in FY21F.
  • Similarly, hoteliers will receive JSS support. While these cost savings are likely for operators rather than hospitality S-REITs (CDL Hospitality Trusts (SGX:J85), Far East Hospitality Trust (SGX:Q5T)), it remains a positive as it boosts the likelihood of tenants maintaining their rental income obligations and leases.
  • We also note that the ~S$870m in aviation support measures is significantly larger than the S$383m set aside in Budget 2020 although details remain scarce.
  • Overall, these measures should help the aviation and tourism sectors weather this crisis, and perhaps emerge stronger vis-à-vis regional and global peers. We have a BUY call on SATS and ST Engineering due to their more diversified business.

GST positive for retail REITs

  • Low value import goods will be taxed for GST from 1 Jan 2023. While the classification of ‘low value import goods’ has not been set in stone yet, we opine that this will include many mass manufactured goods (e.g. household goods, apparel, electronics and beauty/cosmetics) bought from online platforms such as Shopee, Taobao and Qoo10 that currently make up 11% of total retail sales in Singapore (Dec 2020 Singstat). This will increase the consumer’s price of online purchases and create a more level playing field between brick and mortar retailers and their online competitors.

Our thoughts -

  • Positive for retailers (especially brick and mortar shops) as consumers may be less motivated to channel their purchases online, thus mitigating the potential downside risks for retail S-REITs Frasers Centrepoint Trust (SGX:J69U), CapitaLand Integrated Commercial Trust (SGX:C38U), Lendlease Global Commercial REIT (SGX:JYEU) in the medium term.
  • In addition, the expected implementation of a GST hike between 2022 to 2025 may result in consumers front-loading purchases prior to the GST hike.
  • Overall retail sales may see a pick-up in 2021-2022. This will be an added boost for retail S-REITs in the medium term who are able to benefit from the variable rent component of their lease structures (ranging 3% to 5% of overall retail revenues).

Household Support Package benefits supermarket stocks

  • The government will spend about $900mil on lower to middle income families during this uncertain period.
  • Consumer purchasing power gets a boost from the cash handouts in the form of
    1. GST Voucher – Cash Special Payment of up to S$500
    2. GST Voucher – U-Save Special Payment of up to S$595
    3. Conservancy charges rebates and
    4. $200 educational related expenses top-up.

Our thoughts -

Higher petrol duties; incentive to ownership of Electric Vehicles

  • In a bid to improve vehicular emissions, owners are incentivized towards ownership of Electric Vehicles (EV) with S$30m set aside for electric vechicle related initiatives over the next 5 years.
  • Petrol duties will also increase by S$0.10- 0.15 per litre, offset by road tax rebates of 15% for petrol-hybrid vehicles for a 1-year period from 1 August 2021 to 31 July 2022.

Our thoughts – Negligible negative impact for ComfortDelGro.

  • 60% of ComfortDelGro (SGX:C52)'s 9,500 taxi fleet numbers are hybrid and only a small handful is fully electric vechicle. We do not see an immediate fleet migration to EV as conversion to hybrid had started in 2017. As such, it would have to bear the higher petrol duties should it decide to absorb the additional tax for its hirers, although this is partly offset by the 15% rebates on road tax in the near term.
  • However, as we estimate such costs to be less than 5% of total operating expense, the impact of higher petrol duties and tax rebates would be negligible. Driver relief would help to support taxi hiring rates. We maintain BUY on ComfortDelGro with the recovery in domestic transit mobility.
  • See also recent report: ComfortDelGro - DBS Research 2021-02-16: Recovery On The Cards.

Healthcare salary rises may pressure private players

  • The government has announced salary increases for nurses and other healthcare workers in public healthcare institutions.

Our thoughts -

  • While details are yet to be provided, these increases could put staff cost pressures on private healthcare players such as Raffles Medical (SGX:BSL) and IHH Healthcare (SGX:Q0F), especially as borders remain closed for foreign patients. That said, Singapore’s vaccination efforts and aviation support measures could hasten the relaxation of border restrictions, which could unleash pent-up demand from foreign patients sooner.
  • We currently have a BUY call on IHH Healthcare and HOLD call on Raffles Medical.

Help for job seekers

  • The government is extending schemes such as the Jobs Growth Incentive (JGI) and specific traineeship, attachment and training opportunities. S$5.2bn has been set aside for the JGI to extend the hiring window to end- September 2021. Companies that hire a local worker will be given up to 12 months of wage support and up to 18 months if the worker is disabled, matured or an ex-offender. These initiatives amount to the support of hiring of 200,000 local workers and 35,000 traineeships and training opportunities.

Residential property stocks – No news is ‘good’ news

  • Prospective property buyers and listed developers City Developments (SGX:C09), UOL Group (SGX:U14) and Bukit Sembawang (SGX:B61) are likely to get a near term respite as the budget was silent for any property tightening measures that may be introduced as suggested in recent market and media commentaries.
  • However, we do not see this as a sign that expectations of any potential cooling measures are off the table. The performance of the property market will remain in “close observation” from the authorities in the coming quarters, in response to pent-up demand and a low interest rate environment. We maintain our view that the authorities will remain pre-emptive in their approach towards preventing a rise in the property price index (PPI) which is not supported by fundamentals. See report: Singapore Property: Policy tweaks in the horizon?

Kee Yan YEO CMT DBS Group Research | Janice CHUA DBS Research | Woon Bing Yong DBS Research | https://www.dbsvickers.com/ 2021-02-17
SGX Stock Analyst Report BUY MAINTAIN BUY 4.500 SAME 4.500