The 12th Malaysia Plan (12MP) Mid-Term Review (MTR) is a key policy document tailored to realise the aspirations of the Madani Economy initiatives.
RHB Investment Bank Market Strategy cited today (Sept 12) that the MTR dovetails closely with the longer term New Industrial Masterplan (NIMP) that will run through 2030.
The MTR places significant emphasis on governance, sustainability, fiscal and social responsibilities, as well as productivity gains through digitalisation and automation.
The MTR has long-term positive implications for the evolution of Malaysia’s economy, although much will depend on execution. Expect more colour on the short-term initiatives in the 2024 Budget on 13 Oct.
Goods and Services Tax (GST) and Capital Gains Tax (CGT)?
The MTR was a wide-ranging document that also highlighted the need to focus on raising governance standards to root out corruption. Sustainability aspirations featured strongly, as did the social emphasis to support the B40 group in line with the Madani concept, centering on affordable housing and healthcare protection.
The emphasis on maintaining fiscal responsibility and initiatives to broaden the revenue base raises the possibility of the reintroduction of GST and CGT.
Other policy initiatives include efforts to increase the rate of digitalisation, technology innovation and adoption, automation in the agriculture sector, supporting MSMEs including introducing innovative financing, as well as promoting reskilling and upskilling through vocational training to enable the implementation of a progressive wage policy.
Additional development expenditure (DE) allocation to boost construction. The Government’s decision to increase the DE ceiling to MYR415bn from MYR400bn under the 12MP is a mild positive.
Over 2021- 2022, actual DE spent reached just MYR135.9bn, implying another MYR279.1bn allocated for the remaining three years of the 12MP. There were 11 major infrastructure projects mentioned.
Among them were the remaining phase 1B of Sabah Pan Borneo Highway, Penang Light Rail Transit (LRT) and phase 2 of Sabah-Sarawak Link Road.
RHB noted that there was no explicit mention of the Mass Rapid Transit 3 (MRT3) project.
Strategy
The 12MP MTR, along with the NIMP 2030 policy documents, are positive signposts in the right direction to move Malaysia up the value chain to be a high-income nation.
However, its success will depend on effective execution, and RHB noted the long gestation period of the policies.
Key risks for equities include a weak MYR/USD, slower-than-expected pace of economic recovery in China, pallid corporate profitability, and the continued stability of the Government. At 14.5x FY24 P/E, valuations are neither demanding nor a bargain.
Re-rating catalysts include gradual improvements in the global macroeconomic outlook and clearer evidence that the US Federal Reserve’s monetary policy tightening has run its course.
While a core defensive stance is still preferred, market weakness should be seen as opportunities to gradually deploy cash hoards to add to equity positions.
On this note, RHB’s end-2023 FBMKLCI target remains at 1,500pts.
