KUALA LUMPUR: CIMB Equities Research has maintained its end-2016 target for the FBM KLCI at 1,730 while for 2017, it has raised it to 1,880 based on 16 times price-to-earnings.
In its strategy note following the announcement of the 2017 Budget proposalslast Friday, it views the Budget to be relatively neutral on the stock market. It continues to like construction, utilities, banking and small-cap sectors.
CIMB Research said the lower tax rate on corporates that deliver higher chargeable income in 2017 and 2018, as well as proposal to boost trading activities in small- to mid-cap stocks, are offset by the announcement that fixed line broadband service providers have to offer services at a higher speed for the same price in 2017, as well as a lower budget for drugs.
Under the Budget, a new tax scheme will be implemented for 2017 and 2018, where companies will enjoy a reduction of one to four percentage points in the tax rate for increase in chargeable income of 5% or more.
“We estimate that this could potentially boost our market earnings estimates by 0.3% for 2017 and 0.1% for 2018. Sectors that are projected to deliver strong earnings growth in 2017 and 2018 are auto, commodities, conglomerates, construction, transport and services,” it said.
It also pointed out that a small and mid-cap plc research scheme will be introduced to conduct research on 300 companies and government-linked investment companies will allocate a special fund of up to RM3bil to fund managers to invest in potential small and mid-cap companies.
“This should help to boost awareness and interest in small-to mid-cap stocks. Our top picks in this space are Prestariang, My EG Services and Only World Group,” it said.
CIMB Research pointed out the consumer and REIT sectors will benefit from the increase in BR1M assistance by RM50-100 to RM450 and RM1,200 and push to boost tourism activities in the country.
This could help to boost consumer spending. Construction will gain from RM99bil worth of jobs mentioned in the budget and auto will gain from grants for new taxi purchases.
Telco is the key loser from the Budget. The announcement that fixed line broadband service providers need to offer services at a higher speed for the same price, effective January 2017, will cap upselling opportunities for Telekom Malaysia.
The other proposal for the speed to double while the price to be reduced by 50% for 5Mbps packages could hit our FY19 revenue forecasts by 2.2%.
“While numerically there are more winners than losers, the impact on their bottomlines are minimal,” it said