Singapore Budget 2021 - OCBC Investment 2021-02-16: Stronger Together


Singapore Budget 2021 - Stronger Together

  • Targeted support for more impacted sectors.
  • Green effort a key focus for a sustainable future.
  • Supportive for the domestic equity market, but key drivers are still the global COVID-19 trajectory and impact from overseas markets, given Singapore’s small and open economy.

Targeted support for more impacted sectors in Singapore Budget 2021

  • In a clear sign that the government will continue to provide targeted support for sectors and companies which are still hard hit by the pandemic, the Jobs Support Scheme (JSS) was extended. The current tranche will continue to cover wages up to March 2021 for most sectors.
  • In the new budget, the JSS will be extended for sectors that continue to be hard hit, including aviation, aerospace and tourism by six months to Sep 2021. For retail, arts and culture, food services and built environment, JSS will be extended by three months to June 2021. The targeted support and extend cost relief for the aviation sector will cost S$870 million under the COVID-19 Resilience Package.
  • A significant portion or S$4.8b of the S$11b COVID-19 Resilience Package will be channelled towards public health and safe re-opening.

Learn, Adapt, Innovate and Grow

  • The transformation of our workforce will continue and the government has set aside S$24b to be allocated over next 3 years to enable businesses to transform, and this will include creating opportunities and redesign jobs for Singaporeans to develop their skills, creativity and talents. As part of the transformation, a wide range of capital will be available to start-ups and high-growth enterprises. In addition, mature enterprises will be able to tap on fund to adopt new digital solutions and embrace new technologies.

An inclusive and cohesive society

  • A S$900m Household Support Package will provide some support to all families, with lower-to middle-income families receiving more. Groups that have been badly hit by the pandemic will also receive more long-term support.

Green effort is a key focus for a sustainable future

  • To build a nation that has the fiscal and social reserves for continued stability and progress, several measures were announced. Petrol duties will be raised with immediate effect and road tax rebates will help to offset increased costs. The government has recently unveiled the Singapore Green Plan 2030. This aims to create a green, liveable and sustainable nation for Singaporeans. The five broad pillars of the Singapore Green Plan 2030 are City in Nature, Sustainable Living, Energy Reset, Green Economy and Resilient Future. The government also intends to enhance charging network and promote the use of Electric Vehicles (EVs), which we discuss more below in the following section. The petrol duty was also raised with immediate effect – the first time in six years.
  • The government will also lead the effort to issue green bonds on select public infrastructure projects. It has already identified up to S$19b worth of public green projects.

A Welcome Jolt – Going Electric

  • The key sustainability highlight of the 2021 Budget Speech was a significant boost to efforts to accelerate the adoption of Electric Vehicles (EVs) in Singapore.
  • Electric Vehicles are “the most promising clean-energy vehicle technology available today”, Mr Heng said.
  • The key initiatives to encourage the shift to Electric Vehicles in Singapore are:
    • Increasing the number of EV charging points to 60,000 by 2030, more than double the earlier target of 28,000 announced last year. There are currently just 1,800 EV charging points islandwide, according to a 4 January 2021 statement by Transport Minister Ong Ye Kung.
    • Budgeting S$30 million over the next 5 years to support EV-related initiatives, including expanding EV charging infrastructure at private properties.
    • Narrowing the price difference between EVs and conventional vehicles powered by internal combustion engines (ICE) through adjustments to vehicle taxes and rebates, incentivising buyers to switch to EVs.
    • Further discouraging the use of ICE vehicles, by increasing petrol duty rates by 10-15 Singapore cents per litre, effective immediately, accompanied by some rebates to offset the higher costs.
  • Mr Heng had set the policy direction in his Budget speech a year ago, saying then that the government’s vision was “to phase out ICE vehicles and have all vehicles run on cleaner energy by 2040”.
  • We expect the latest policy measures to significantly boost the number and penetration of EVs in Singapore in the coming years. There are now just 1,430 fully electric vehicles – mainly private cars – or 0.15% of the total vehicle population of 953,340 at end-January, according to Land Transport Authority data. Of the 636,480 private cars in Singapore at end-January, just 1,270 or 0.2% are fully electric cars.
  • In a clear sign that the government is preparing for a much greater penetration of EVs in Singapore in the coming years, Mr Ong had said in a statement last October that the initial target of 28,000 charging points would be insufficient, “if we assume EVs are one-third of all private cars by 2030”.

Other key sustainability announcements

  • The government will take the lead in mobilising capital to fuel Singapore's sustainability drive by issuing green bonds on select public infrastructure projects. It has identified S$19 billion of public sector green projects including Tuas Nexus, an integrated water and waste treatment facility.
  • Singapore’s carbon tax will be maintained at the current rate of S$5 per tonne of greenhouse gas emissions until 2023. The government will review the level and trajectory of the carbon tax post-2023, and announce the review outcome at next year’s Budget.

No GST hike for now, likely in 2022 to 2025

  • The GST rate increase will not be introduced in 2021, but the government added that it will likely be introduced some time during 2022 to 2025, and sooner rather than later, subject to the economic outlook.
  • All in, the measures that the Singapore government is taking would be a supportive factor for the domestic equity market, but key drivers are still the global COVID-19 trajectory and the impact from overseas markets, given Singapore’s small and open economy. We provide further details on certain sectors below from the Budget:

Real Estate: No property curbs

  • Pre-budget, market watchers were expecting another round of property measures to cool down residential property prices, especially in view of the still weak economic outlook. As expected, there was no mention at the Budget 2021 announcement. However, we expect the local authorities to continue to closely monitor property prices in the coming months to watch out for signs of prices running ahead of market recovery.
  • Meantime, the extension of the Jobs Support Scheme will help to provide continued support for sectors such as tourism, retail and food services, which would provide some positives for retail and hospitality REITs.

Land Transport: Help for now but no escaping energy transition

  • The land transport sector was also flagged for additional support by Mr Heng. S$133m has been set aside to continue the earlier announced COVID-19 Driver Relief Fund. Recall that it was announced in December last year that drivers in the point-to-point (P2P) transport sector will get a higher amount of grants to offset vehicle rental fees. Eligible drivers will get S$600 per month from January to March, and S$450 per month from April to June. The COVID-19 Driver Relief Fund replaces the Special Relief Fund, through which P2P drivers have been receiving payouts since February last year.
  • Such funds are important – indeed for ComfortDelGro (SGX:C52), its taxi operation has been the main drag in 2020, with operating loss of S$64.4m. The group’s taxi fleet stood at 9,444 taxis (~60% hybrid) as at Dec 2020, which was ~12% lower compared to Dec 2019. Current utilization level is around 95%.
  • That said, the government also announced that there would be an increase in petrol duty from 16 Feb 2021. Petrol duty rates will be raised by S$0.15 per litre for premium petrol while the rate for intermediate petrol will be raised by S$0.10 Petrol duty was last increased in 2015 when the rates for premium grade petrol and intermediate grade petrol were increased by S$0.20 and S$0.15 per litre, respectively.
  • To offset the impact, active taxi and private hire car drivers using petrol and petrol hybrid vehicles would obtain petrol duty rebates of S$360 over four months. This is on top of a 15% road tax rebate for one year for all taxis and private hire cars using petrol. Buses using petrol will receive a 100% one-year tax rebate.

Aviation: Extension of support

  • For the aviation sector, the JSS will be extended further by six months from Apr to Sep 2021 but at lower wage subsidies of 30% for wages paid from Apr to Jun and 10% for wages paid from Jul to Sep. This compares to the current 50% cash subsidies of the first S$4.6k of gross monthly wages paid to each local employee.
  • Separately, the aviation sector will receive additional S$870m of support and extended cost relief measures such as rebates on landing and parking charges, and rental reliefs for airlines, ground handling companies and cargo agents as international air travel demand remains muted.
  • According to International Air Transport Association (IATA)’s latest estimates, global passenger traffic measured by revenue passenger kilometres is not expected to return to pre-COVID-19 levels until 2024 at the earliest. As it takes time for global rollout of vaccines, we believe that the Singapore government is likely to take a measured and gradual approach to the re-opening of borders to prevent the risks of imported COVID-19.
  • We view the extension of support measures to the aviation sector as a positive which is likely to benefit Singapore Airlines (SGX:C6L)SATS (SGX:S58)SIA Engineering (SGX:S59) which benefitted from declines in their group expenditures over the past few quarters, thanks to government support schemes and cost-saving initiatives. Moreover, the government also aims to invest in on-arrival testing and biosafety systems to secure Singapore’s position as a key aviation hub. The upgraded capabilities to enable safe travel could further aid SIA’s recovery, in our view.

Banks: Beneficiary of Singapore’s ongoing economic healing, constructive stance maintained

  • Budget 2021 targets a more modest budget deficit of -2.2% of GDP this year (close to our economist’s expectation of a -2.5% deficit), taking on a more prudent stance following 2020’s budget deficit (13.9% of GDP, ~S$64.9bn) with an additional S$11 billion in stimulus announced. As widely expected, while support for the economy and jobs was extended, the measures in the latest budget were more targeted with continued assistance for the most impacted sectors. At the same time, the focus has also shifted towards medium term goals and sustainable fiscal priorities to enable the country to emerge stronger from the pandemic.
  • Amongst the various initiatives announced in Budget 2021 which included a $900 million Household Support Package, the extension of the Jobs Support Scheme (JSS) in a calibrated manner is reflective of policy makers’ improved confidence on the recovery trajectory of the broader economy. To date, the JSS has provided meaningful support for businesses and workers during the pandemic, with over S$25bn committed to the scheme and support for more than 155,000 employers for up to 17 months. Sectors such as financial services and precision engineering, which have been relatively more resilient, did not have their subsidies extended after December 2020.
  • While the current tranche of JSS will cover wages for most remaining sectors up to March 2021, more support was offered to firms in select tier 1 and 2 sectors that continue to be heavily impacted by the pandemic. A S$24 billion plan was also announced to support firms and workers to re-skill and adapt to the new demands of a post-COVID-19 economy.
  • Our house expects Singapore’s GDP growth to recover around 5% y-o-y this year, at the middle of the Ministry of Trade & Industry’s 4% to 6% GDP growth forecast for 2021. This follows the severe -5.4% y-o-y economic contraction in 2020 due to the pandemic, which marked the worst recession for Singapore since independence. For 2021, on the back of our more constructive macro forecasts, we have upgraded our view on the financials sector and expect an improving outlook for the Singapore banking sector, which should benefit from an ongoing recovery in economic activities and vaccines rollouts which target full population vaccination by 3Q21.
  • Overall, we see Singapore banks as indirect beneficiaries of the continued policy support for the economy and labour market, which supports market confidence and reduces concerns over cliff effects for the more impacted sectors, which should in turn translate into lower downside risks for credit costs.
  • The call to grow infrastructure investments and engagement within the ASEAN region looks aligned with Singapore banks’ regional growth plans over the medium term, and should be supportive of loans and fee income growth prospects over time. A key part of the budget speech was also spent on sustainability initiatives, the Singapore Green Plan 2030 (which includes a goal to develop Singapore into a hub of green finance and carbon services and plans by the government to issue new bonds up to S$90 billion to finance long term infrastructure projects

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-02-16
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