SINGAPORE AIRLINES LTD (SGX:C6L)
SATS LTD. (SGX:S58)
SIA ENGINEERING CO LTD (SGX:S59)
SINGAPORE TECH ENGINEERING LTD (SGX:S63)
GENTING SINGAPORE LIMITED (SGX:G13)
SG Budget 2021 - Time For Singapore Corporates To Buck Up On Growth & Cost Controls
- Singapore’s Budget 2021 is relatively a non-event vs the generous packages in 2020. Singapore corporates need to buck up on growth and cost controls.
- SIA, SATS, SIA Engineering, Genting Singapore and ST Engineering get incremental relief from the extended Job Support Scheme (JSS), but the impact is limited to 2-4% of FY22F opex.
- GST rate hike from 7% to 9% to take place between 2022 and 2025 (we think 2023 is likely). E-commerce GST will take effect from 1 Jan 2023.
- We keep our 2021 year-end FSSTI target of 3,068 points, based on 14.2x forward P/E.
Travel border reopening hope by Sep 21?
- The Job Support Scheme (JSS) will be extended by six months for Tier 1 sectors (aviation, aerospace and tourism), i.e. firms to receive 30% support for wages paid in Apr-Jun 2021, followed by 10% for wages in Jul-Sep 2021. Firms in Tier 2 sectors (retail, arts and cultures, food services and construction) will see the JSS extended by three months (10% support) for wages paid in Apr-Jun 2021.
- Beneficiaries:
- We believe the tapered wage support of 10% in Jul-Sep 21 could mean partial travel border reopening at Changi Airport. Other sectors such as marine and supermarkets will not see the JSS extended beyond Dec 20/Mar 21.
Focusing on locals
- Focusing on the local workforce is key as the government also stepped up the Jobs Growth Incentive (JGI) to S$5.2bn (from S$3bn) to extend the hiring window till end-Sep 2021. The JGI salary support is for the first S$5k gross monthly wages paid to new local hires.
- The government will also reduce the S-Pass sub-dependency ratio ceiling (sub-DRC) for manufacturing sectors from 20% to 18% from 1 Jan 2022, and to 15% from 1 Jan 2023, similar to the marine and construction sectors as announced in Budget 2020.
Going green; petrol duty up
- S$30m is set aside over the next five years for electric vehicle (EV) related initiatives, such as measures to improve charging provisions on private premises. The Additional Registration Fee (ARF) floor will be lowered to zero for EVs from Jan 2022 to Dec 2023. The ARF is paid when registering a vehicle, and the rate is determined by its open market value.
- The petrol duty rate will be raised with immediate effect. Premium petrol duty is up S$0.15 per litre and intermediate petrol is up S$0.10 per litre.
- The government will lead in issuing green bonds and has identified up to S$19bn worth of public sector green projects.
E-commerce tax, GST hike in 2022-2025
- The GST rate hike (from 7% to 9%) will not take effect in 2021 but in 2022-2025, subject to the economic outlook. GST is critical to meet rising healthcare spending needs. We think the hike could be in 2023F, assuming recovery is intact.
- Singapore will extend GST to imported low-value goods via air or post from 1 Jan 2023 to ensure a level playing field for local businesses vs cross-border e-commerce platforms. This could potentially be a speed bump in the growth of e-commerce penetration in Singapore when implemented.
- Under our coverage, SEA Limited (SE US) could be affected, but minimally given that Singapore remains a small contributor to its earnings.
Budget 2021's implication on SGX listed stocks
- Singapore Airlines (SIA, SGX:C6L) (ADD, Target price: S$4.90) has so far benefitted from two JSS schemes, and Budget 2021 is extending the JSS benefits by a further six months. The original JSS lasted 10 months, from Oct 2019 to Aug 2020 (excluding Jan 2020), where the government paid SIA 75% of the first S$4,600 gross monthly salary for Singaporean and PR employees (we estimate SIA received S$40m/month). The second JSS was a seven-month extension from Sep 2020 to Mar 2021, where the payout was reduced to 50% (we estimate SIA received S$20m- 25m/month).
- Budget 2021 extended the JSS for a further six months from Apr 2021 to Sep 2021. From Apr to Jun 2021, the government will pay 30% of the first S$4,600 gross monthly salary for Singaporean and PR employees (we estimate SIA will receive S$12m-15m/month), followed by 10% from Jul to Sep 2021 (we estimate SIA will receive S$4m-5m/month). Based on our estimates above, for FY3/22F, SIA may receive JSS payments amounting to S$48m-60m, which is 3.8%-4.7% of our FY22F core net loss estimate of S$1,264m.
- Similarly, SATS (SGX:S58) (ADD, Target price: S$4.30) has also benefited from the JSS and received about S$196m worth of grants and reliefs (from regional governments, mainly Singapore and Japan) for 9MFY21. Based on our estimate, the extension of JSS could help to reduce SATS’s staff costs by ~S$22m for FY22F (or about 2% of its opex). We have factored in staff costs to increase by 34% y-o-y in FY22F as government relief tapers.
- SIA Engineering (SGX:S59) (HOLD, Target price: S$1.78) has received about S$148m worth of grants for 9MFY21, which resulted in a S$7.7m profit in the latest 3QFY21 business update. The extension of JSS could help to reduce SIA Engineering’s cost by ~S$15m for FY22F (or 3% of its opex).
- ST Engineering (SGX:S63) (ADD, Target price: S$4.00) expects to receive north of S$300m in grants in FY20F and about S$100m in FY21F, based on the previously announced JSS. In the latest Budget, only aerospace will benefit from the extended JSS. We estimate ST Engineering to receive S$13m in incremental relief.
- Genting Singapore (SGX:G13) (ADD, Target price: S$1.05), belonging to Tier 1, could also benefit from the JSS extension although the amount is not disclosed.
- HRnetGroup (SGX:CHZ) (ADD, Target price: S$0.635) is likely to benefit from the JGI, with the government revving up the hiring of 200,000 workers in 2021. Currently, this represents 4.3% of our total permanent placement projection (8,600) in FY21F. If HRnetGroup could capture 5% of this market (10,000 permanent placements), this could see our initial projections of core PATMI in FY21F increase from S$45.8m to S$55.3m (+20.8%), or a 23.2% growth from pre-COVID-19 levels (from our previous +2.0% estimate), assuming all other variables stay constant.
- We believe the announced measures offer minimal incremental help for ComfortDelGro (SGX:C52) (ADD, Target price: S$1.70). The S$133m COVID-19 Driver Relief Fund mentioned in the Budget was already announced by LTA back in Dec 20. Meanwhile, the extension of JSS (for tier 2 sectors: 10% wage subsidy for three months) that ComfortDelGro can qualify for under this Budget is only for its rail and taxi operations, which we believe make up only a small proportion of ComfortDelGro's workforce (the public bus segment, which accounts for the bulk of ComfortDelGro's workforce, does not qualify for JSS extension post-Mar 21).
LIM Siew Khee
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-02-16
SGX Stock
Analyst Report
4.890
SAME
4.890
4.300
SAME
4.300
1.780
SAME
1.780
4.000
SAME
4.000
1.050
SAME
1.050
