My Daily Blog: Budget 2008 Preview

Technorati Tags : budget 2008, tax, general election, 9MP, regional economic initiative, IDR, Northern Corridor, Eastern Corridor, stock picks

This preview is taken from Asembankers Equity Research

A non-event or more good news to come …?

Budget 2008, to be tabled in Parliament on 7 Sep 2007, appears to have been overtaken by numerous announcements of tax and non-tax measures in the past one year. So what’s left? With the next General Election in mind and elevated risks on the external front, we expect Budget 2008 to be people friendly and supportive of domestic demand.

Topping our list of expectations is the reduction in personal income tax rates – which was last cut in Budget 2002 – following the corporate income tax rate cut announced in Budget 2007, plus a host of “grassroot goodies” to bolster disposable income and address today’s higher cost of living. In addition, the Government’s net development spending allocation is expected to be ramped up to RM50b next year (2007E: RM42b) given the roll out of major infrastructure projects (worth >RM1b each) under the 9MP, which should be good for the construction sector.

We expect the property sector – especially the mass market and the REITs segments – to be a MAJOR beneficiary of this Budget. There may also be measures and incentives to “complement” corporate income tax cuts for 2008 announced in Budget 2007, aimed at spurring investment activities, especially in the launched and soon-to-be announced regional economic initiatives (IDR, NCER, Eastern Corridor, East Malaysia), and activities in high growth and high-potential economic sectors and industries such as modern agrobased and halal food industries as well as energy sector, namely oil & gas, biofuel and renewable energy (RE).

We are not ruling out a “sin tax” hike in Budget 2008, this time hitting the brewery sector. In addition, for cigarettes, there may be announcements on minimum price per pack to curb smoking among the young, despite an increase in excise duties on cigarettes in July.

Anything Goods and Services Tax (GST)-related would be a big surprise in Budget 2008 – we think this is highly unlikely. However, we are not ruling out an announcement on GST next year after the General Election given the possibility of GST being implemented as early as 2009, and in view of the fact that the Government now has acquired the habit of announcing tax measures outside of the Budget.

Key potential beneficiaries of Budget 2008 are REITs (top picks: Axis REIT, Quill Capital Trust, Atrium REIT, construction companies (top pick: WCT Engineering), property developers (top picks: Sunway City, Sunrise) and consumer companies (top picks: KFC, Aeon, Amway).

Key beneficiaries of the regional economic development initiatives are UEM World for the IDR; EPIC and Petronas Gas for Eastern Corridor; Hock Seng Lee and WCT Engineering for East Malaysia; and MRCB, UEM Builders and Equine Capital for the Northern Corridor.