Budget 2024’s main highlights and takeaways are sustaining fiscal consolidation with a lower budget deficit to GDP ratio of 4.3%, containing tax and non-tax measures to support fiscal consolidation that is both expected and unexpected (i.e. hikes in Service and Sugar Taxes); and aligning allocations and incentives with the recently announced policy frameworks, masterplans and roadmaps, NETR, NIMP, 12MP MTR thus benefitting sectors/industries/areas like construction/infra, MSMEs, electronics, chemical/petrochemicals, RE & EVs, startups, tourism, Islamic finance & halal, food security and global services hub.
Maybank says information/details are lacking on some of the key Budget 2024 measures, including the effective date for the implementation and the list of goods subject to the High-Value/Luxury Goods Tax, as well as the timing and quantum of the targeted subsidy rationalization involving food, electricity and fuel subsidies, suggesting these Budget 2024 measures are still “work in progress”, hence, for example, the wide 2024 inflation rate forecast range of 2.1%-3.6%. The house is also surprised that Budget 2024 was silent on the much-talked-about Progressive Wage System (PWS).
Overall, Maybank is positive on Budget 2024 measures with fiscal consolidation commitment reiterated; yet, it is expansionary and pro-growth. The winner, in its view, is the Construction sector on higher development allocation and new projects like the KVLRT’s 5 new stations (MYR4.7b), nationwide flood mitigation programme (MYR11.8b) and Penang LRT
(MYR10b). The aviation sector is a key beneficiary of higher allocation to boost tourism, while selected players in the Consumer and Software Tech sectors are potential winners of measures in Budget 2024 (QLG, LHIB, CAB, HEIM, ITMAX, Ramssol, GHL, CTOS). Gaming is a clear loser due to a higher Service Tax rate that the gaming operators absorb, but the earnings impact is small and there are remedial measures.
Maybank makes no change to the earnings forecasts the house also maintains its 2023 YE KLCI target at 1,520 which implies 13x 12M fwd. PER, and 2024 YE target range of 1,600-1,700 (tentative), based on 13-14x 12M fwd. PER. At 1,444 now, the KLCI is trading at 12.7x 12M fwd. PER, which is -1.6SD of its LT mean (since 2000) has been a short-lived market bottom in the past. It also makes no change to the sector weight with the exception of Renewables which is now Overweight.
