Budget 2021 Review:
We shall chart your Supersized financial course towards But Spread Too Thin a profitable future.
7 November 2020 7 November 2020
Budget 2021 KLCI 1519.64 @ 6 November 2020
“A something for everyone budget but not sufficient to tackle the Malaysia Macro & Strategy sectors badly hit by Covid-19” NEUTRAL (maintain) 2020 KLCI Target: 1,650 Up/Downside: +8.6% Previous Target: 1,650
KLCI vs MSCI World, MSCI AxJ Budget 2021: Supersized but spread too thin MSCI World MSCI AxJ FBMKLCI 10% MSCI AxJ: 4.6% 5% With a 10% growth in total expenditure, Budget 2021 addresses the needs 0% MSCI World: 11.9% -5% of everyone. Including a surprise cut in taxes and a reduction in employee
-10% FBMKLCI: -4.4% EPF contribution, focus remains on domestic demand to support growth in -15% the coming year -20%
-25% This expansionary budget will result in a budget deficit of 5.4% of GDP in -30% 2021E. However, in the event of a prolonged and widespread lockdown due -35% Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 to Covid-19, we think the government still has room to fiscal pump-prime Source: Bloomberg, Affin Hwang We expect the gloves to rally, as a key overhang is removed. Other sector Key market statistics beneficiaries are the Construction sector and Cellular operators. No 2020E 2021E additional taxes for the sin sector and BAT could also benefit from GDP growth (%) (5.0) 6.0 increased government focus to tackle the illicit cigarette market
KLCI EPS growth (%) (21.0) 29.0 Source: Affin Hwang forecasts 2021 Economic Outlook and Fiscal Outlook – Government Financial Position
Top calls for 2020 Based on the assessment and projection on the country’s economic prospects for 2021, the Ministry of Finance (MOF) expects real GDP growth to recover and expand Ticker Stock Rating Price TP by between 6.5% and 7.5% in 2021, rebounding from -4.5% estimated for (RM) (RM) Top buys: 2020. Notwithstanding the narrowing of the GDP growth forecast range from an TOPG MK TOP GLOVE BUY 8.50 15.45 earlier official estimate of between 5.5% and 8.5%, the Treasury’s projection at mid- HART MK HARTALEGA BUY 18.20 27.10 point of 7.0% in 2021 (calculated based on GDP absolute values at constant price), DLG MK DIALOG BUY 3.80 4.30 T MK TELEKOM BUY 4.20 5.00 signals an official view of continued improvement in domestic economic conditions QLG MK QL RESOURCES BUY 6.52 7.11 despite these challenging times with the COVID-19 pandemic. SIME MK SIME DARBY BUY 2.47 2.76 INRI MK INARI BUY 2.68 3.07 SCI MK SCIENTEX BUY 11.92 13.20 Tax and expenditure for 2021 Budget is expansionary ACSM MK AEON CREDIT BUY 9.65 13.00 Generous measures are introduced for the people and business in the 2021 Budget, HSS MK HSS ENGINEERING BUY 0.45 0.82 where the tax and expenditure programme of the Federal Government also takes Source: Affin Hwang, share prices as of 6 November 2020 more precedence in supporting economic growth than fiscal consolidation. Total expenditure allocation (including operating and development expenditures) of RM305.5bn is 10.4% higher than a decline of 12.8% estimated expenditure for 2020,
where operating expenditure is projected to increase by 4.3% to RM236.5bn in 2021, while development expenditure is expected to increase by 38% to RM69bn in 2021 (RM50bn in 2020). Federal Government is projected to incur a budget deficit of RM84.8bn or -5.4% of GDP in 2021, compared with a deficit of RM86.5bn or -6.0% of GDP in 2020.
Overhang for glove sector removed
From an equity perspective, there were several pleasant surprises. First off, a Research Team speculated windfall tax for the glove sector had not materialised. Instead, the 4 large T (603) 2146 7516 glove players would contribute RM400m to the government for the procurement of a E [email protected] Covid-19 vaccine and medical equipment. The estimated impact to net profit for the respective companies is a mere 3-5%, which we believe is marginal, and hence likely to spur a sector rally in our view, post this major overhang.
Construction and Cellular operators also to benefit Higher development expenditure at RM69bn (+38% yoy) should be a positive for the construction and infrastructure sector, although the sector may fail to outperform considering political uncertainty given the prospects of an early election going into 2021. The telco sector is also set to benefit from a RM1.5bn aid to the B40 segment to ensure access to broadband. This in our view should help preserve ARPUs particularly for the cellular operators, which are seeing intense competition. Meanwhile, the regulator, MCMC has also been allocated RM7.4bn to build and enhance broadband services over 2021-22, which ties in nicely with the broadband aid to the B40 segment.
A relief for the sin sector, and measures to address the illicit cigarette market On the sin sector, we are encouraged that no further taxes were imposed. Measures introduced to tackle the illicit cigarette are also welcoming, considering that the legit market share has shrunk to c. 30% and hence should be a positive booster to government loss in tax revenue, which has estimated to be in the region of RM5bn.
But Covid-19 badly hit sectors, not well addressed However, we were taken a little aback that there were few measures to address badly impacted sectors hit by Covid-19 largely surrounding the tourism-related industry (airlines, airports, hotels, retailers and related services). The tourism sector employs nearly a third of the working population and could be a near term concern. While the provision allows such EPF contributors to draw down their pension funds from their main Account 1, we think that this is a short term measure that could eventually return to haunt, considering that most savers already do not have sufficient funds in this account for retirement. Elsewhere, targeted loan repayment assistance may also provide some short term relief. The government has nevertheless projected that unemployment will improve to 3.5% from 4.2% in 2020.
Maintain Neutral on the KLCI and year-end target of 1,650 Budget 2021 has not prompted us to make any revisions to our market EPS projections. We retain our 1,650 year-end target for the KLCI (based on 19x on CY20E market EPS) which is largely underpinned by our strong conviction on the glove stocks. For the broader market, we are of the view that the earnings recovery and valuations lack excitement. Our other sector Overweights are in the Autos & Autoparts, Building Materials and Utilities. Key risk for the market lies in an earlier- than-expected vaccine for Covid-19 which could result in a collapse in glove stock prices and the KLCI, a sovereign rating downgrade, further weakness of the US$ and possibly aiding fund inflows, sharp decline in oil prices and geopolitical risk.
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Budget 2021 – An expansionary budget
2021 Economic Outlook and Fiscal Outlook – Government Financial Position Based on the assessment and projection on the country’s economic prospects for 2021, Ministry of Finance (MOF) expects real GDP growth to recover and expand by between 6.5% and 7.5% in 2021, rebounding from -4.5% estimated for 2020. Notwithstanding the narrowing of the GDP growth forecast range from an earlier official estimate of between 5.5% and 8.5%, the Treasury’s projection at mid-point of 7.0% in 2021 (calculated based on GDP absolute values at constant price), signalling an official view of continued improvement in domestic economic conditions despite these challenging times with the COVID-19 pandemic. Real GDP growth in absolute value is projected to recover from RM1.36trillion in 2020 to RM1.45trillion in 2021, bringing output above its pre-crisis level by end 2021 (RM1.42 trillion in 2019).
Fig 1: MOF’s GDP projection
Source: MOF Economic Report 2020/2021
Our GDP growth forecast of 6% for 2021 is lower than the official forecast of between 6.5% and 7.5%, where the main difference lies in higher growth forecast on real exports by Treasury, which is projected to expand by 8.7% in 2021 (-13.4% in 2020), against Affin Hwang’s 7.0%. The other difference in forecast lies in Affin Hwang’s growth outlook on domestic demand, which we project at 6.2% in 2021, against Treasury’s higher projection of 6.9%. Nevertheless, MOF’s GDP growth projection is based on a set of reasonable assumptions for 2021, with Brent crude oil price of about US$42 per barrel next year (US$40 per barrel in 2020), as well as a global GDP growth forecast of 5.2%. The country’s headline inflation is projected to trend higher to 2.5% in 2021, with budget deficit target of -5.4% of GDP.
Fig 2: GDP growth projections comparison MOF Affin MOF Affin 2018 2019 2020 2021 Private consumption 8.0 7.6 -0.7 -4.5 7.1 5.5 Private investment 4.3 1.6 -11.7 -10.0 6.7 7.5 Public consumption 3.2 2.0 1.6 5.0 2.0 6.0 Public investment -5.0 -10.8 -9.3 -15.0 16.9 10.0 Domestic demand -5.5 4.3 -3.0 -5.0 6.9 6.2 Real exports of goods and services 1.9 -1.3 -13.4 -9.8 8.7 7.0 Real imports of goods and services 1.5 -2.5 -11.9 -10.0 9.2 7.3 GDP 4.8 4.3 -4.5 -5.0 6.5 - 7.5 6.0 Agriculture 0.1 2.0 -1.2 -2.0 4.7 3.0 Mining and Quarrying -2.2 -2.0 -7.8 -6.0 4.1 5.0 Manufacturing 5.0 3.8 -3.0 -7.0 7.0 7.5 Construction 4.2 0.1 -18.7 -15.0 13.9 9.0 Services 6.8 6.1 -3.7 -3.8 7.0 5.5 GDP 4.8 4.3 -4.5 -5.0 6.5 - 7.5 6.0 Source: MOF Economic Report 2020/2021, Affin Hwang estimates
We believe uncertainty surrounding the development of the pandemic will continue to be a downside risk to the growth outlook. In recent months, the global COVID-19 pandemic continued to spread, with some countries have reinstated partial lockdowns. If worldwide cases continue to rise with possible reintroduction of containment measures, no emerging markets, including Malaysia, can escape the negative impact to the global growth, especially when global economic growth could be distorted by global supply chain disruptions due to the Covid-19 outbreak.
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We also expect the downside risk is on lower growth in private investment, as this is highly correlated with uncertain external conditions. When foreign investors are faced with similar challenges from Covid-19 outbreak in their home countries, there are risks of delay or postponement in implementation from their investment. This also explains the Government’s proposal to allocate a substantial RM69bn to development expenditure focusing on construction-related and infrastructure projects with high multiplier impact to support the domestic economy as well as prioritized to be carried out in supporting the country’s total investment growth in 2021. From the total amount allocated for 2021, RM67.3bn will be in the form of direct allocation whilst the remaining RM1.7bn is allocated for the state governments and Government-linked entities.
Tax and expenditure for 2021 Budget is expansionary While generous measures are introduced for the people and business in the 2021 Budget, the tax and expenditure programme of the Federal Government also takes more precedence in supporting economic growth and affected industries than fiscal consolidation. Government’s revenue collection will likely to recover in 2021, with a total collection of RM236.9bn (RM227.3bn estimated for 2020). Total expenditure allocation (including operating and development expenditures) of RM305.5bn is 10.4% higher than decline of 12.8% estimated expenditure for 2020, where operating expenditure is projected to increase by 4.3% to RM236.5bn in 2021, while development expenditure is expected to increase by 38% to RM69bn in 2021 (RM50bn in 2020). After adjusting for Covid-19 fund of RM17bn in 2021 (RM38bn in 2020), the Government’s total expenditure is also projected to increase by 2.5% to RM322.5bn in 2021, higher than decline of 0.9% estimated expenditure for 2020. Federal Government is projected to incur a budget deficit of RM84.8bn or -5.4 of GDP in 2021, compared with a deficit of RM86.5bn or -6.0% of GDP in 2020.
Fig 3: Federal Government finances RMbn Change (%) Share of GDP (%) 2019 20203 20214 2019 20203 20214 2019 20203 20214 Revenue 264.4 227.3 236.9 13.5 -14 4.2 17.5 15.8 15.1 Operating expenditure 263.3 226.7 236.5 14 -13.9 4.3 17.4 15.8 15.1 Current balance 1.1 0.6 0.4 - - - 0.1 0.0 0.0 Gross development expenditure 54.2 50 69 -3.4 -7.7 38 3.6 3.5 4.4 Less: Loan recovery 1.6 1 0.8 103.4 -37.6 -20 0.1 0.1 0.1 Net development expenditure 52.6 49 68.2 -4.9 -6.8 39.2 3.5 3.4 4.3 COVID-19 Fund1 - 38 17 - - -55.3 2.6 1.1 Overall balance -51.5 -86.45 -84.84 - - - -3.4 -6 -5.4 Primary balance2 -18.6 -51.51 -45.84 - - - -1.2 -3.6 -2.9 1 A specific trust fund established under Temporary Measures for Government Financing (Coronavirus Disease 2019 (COVID-19)) Act 2020 to finance economic stimulus packages and recovery plan, 2 Excluding debt service charges, 3 Revised estimates, 4 Budget estimates, excluding 2021 Budget measure Source: MOF Economic Report 2020/2021
Covid-19 Fund might be increased from RM45bn to RM65bn The Government established a COVID-19 Fund in 2020 for implementation of programmes and projects under the economic stimulus packages and recovery plan. As announced in the 2021 Budget speech proposal, a total of RM65bn for Covid-19 Fund (raised from RM45bn) has been established, which will allow to be spent with a validity period of three years ending 31 December 2022, if approved. Assuming if we include the additional RM20bn to the Covid-19 Fund, Federal Government budget deficit could potentially be around -6.7 of GDP projected for 2021.
Fig 4: 2020 Economic Stimulus Package and Recovery Plan Total value Direct fiscal injection RM bn % of GDP RM bn % of GDP PRIHATIN 250 17.4 25 1.7 Pre 19.7 1.4 3.2 0.2 Prihatin 230.3 16 21.8 1.5 PRIHATIN SME+ 10 0.7 10 0.7 PENJANA 35 2.4 10 0.7 Sub total 295 20.5 45 3.1 KITA PRIHATIN 10 0.7 10 0.7 Total 305 21.2 55 3.8 Source: MOF Economic Report 2020/2021
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As guided by MOF, the Covid-19 Fund may receive proceeds from borrowings as provided under subsection 4(1) of the COVID-19 Act, enabling programmes and projects under the economic stimulus packages and recovery plan be fully funded by proceeds from domestic borrowings.
Operating surplus to remain in 2021 Even though government’s revenue collection still outpaces operating expenditure, operating surplus for 2021 is projected to be sharply lower at RM0.36bn (RM0.55bn estimated in 2020), the lowest operating surplus since 1987. Going forward, we believe it is important for the Government to maintain its current operating expenditure target as planned or pursue some operating expenditure reduction programme, as revenue sources from direct taxes and non-tax revenues are vulnerable to external factors and shocks depending on the state of the global economy. Some measures to provide an appropriate buffer to raise the position of operating surplus might reduce the risk of an operating deficit.
While Malaysia’s economic fundamentals remain sound, we believe the Covid-19 outbreak has reduced some strength of certain key features of the economy, especially with the higher fiscal deficit target and rising government debt. Fig 5 showed that since 1987, the Government has safeguarded the country’s operating surplus position (i.e. government revenue still outpaced that of operating expenditure). Historically, the country’s annual deficits had been financed partly by Government borrowings channelled mainly towards development expenditure, and not for operating expenditure.
Fig 5: Government’s operating balance
Source: MOF
Higher allocation for development expenditure to support economic growth Most of the allocation will be received by the economic sector, which accounts for 56.4%, followed by social (26.7%), security (11.2%) and general administration (5.7%). The spending on economic sectors of RM39bn will be mainly used for transport (RM15bn), trade and industry (RM3.1bn) and energy and utilities (RM3.3bn).
Transport subsector received a higher distribution under the economic category, constituting 21.8% of total DE, mainly for upgrading, expansion and maintenance of highways, roads, railways, bridges, ports and airports such as the construction of Electrified Double Track Gemas – Johor Bahru, Pan Borneo Highway, KVDT1, Rapid Transit System and the expansion of Kuantan Port and airport in Sandakan.
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Fig 6: Federal Government development expenditure RM bn Change (%) Share (% of total) 2019 2020 1 2021 2 2019 2020 1 2021 2 2019 2020 1 2021 2 Economic 31.3 28.5 38.9 -13.3 -8.9 36.3 57.8 57.1 56.4 Transport 13.8 10.2 15.0 -19.1 -25.9 47.5 25.4 20.4 21.8 Trade and industry 3.1 2.4 3.1 21.6 20.2 28.0 5.6 4.9 4.5 Energy and public utilities 2.8 3.6 3.3 22.4 29.9 -7.1 5.1 7.2 4.8 Agriculture and rural development 2.3 3.0 2.9 8.5 30.3 -4.0 4.3 6.0 4.2 Environment 1.7 1.7 1.9 3.5 0.6 9.1 3.2 3.5 2.7 Social services 14.5 13.1 18.4 12.5 -9.8 40.7 26.7 26.1 26.7 Education and training 7.6 5.9 8.9 17.3 -23.1 51.1 14.1 11.7 12.9 Health 1.8 2.9 4.7 3.0 57.8 63.9 3.4 5.8 6.8 Housing 2.1 1.5 1.8 65.4 -29.9 23.0 3.9 3.0 2.7 Security 5.6 5.6 7.8 13.9 -1.0 40.0 10.4 11.1 11.2 General administration 2.8 2.9 4.0 26.7 3.1 38.6 5.1 5.7 5.7 Total Development Expenditure 54.2 50.0 69.0 -3.4 -7.7 38.0 100.0 100.0 100.0 Share of GDP (%) 3.6 3.5 4.4 1 Revised estimate; 2 Budget estimate, excluding 2021 Budget measures Source: MOF Economic Report 2020/2021
Revenue is expected to increase by 4.2% in 2021 Following lower revenue in 2020 of RM227.3bn, revenue is expected to increase by 4.2% to RM236.9bn, amid higher GDP growth projection as well as improving business prospects. Higher revenue will be mainly from higher tax collection, where the Government expects direct tax collection to increase by 14.6% to RM131.9bn (RM115.1bn in 2020) led by higher revenue from companies income tax (CITA), petroleum income tax (PITA) and individual income taxes. CITA is projected to rise by 8.8% to RM64.6bn in 2021, while PITA is anticipated to increase by 52% to RM13bn based on higher average crude oil assumption of US$42 per barrel. Meanwhile, individual income tax is also projected to be higher by 18.2% to RM42.4bn contributed by stable employment prospects and sustained wage growth.
Fig 7: Federal Government revenue RM bn Change (%) Share (% of total) 2019 2020 1 2021 2 2019 2020 1 2021 2 2019 2020 1 2021 2 TAX REVENUE 180.6 153.3 174.4 3.7 -15.1 13.8 68.3 67.4 73.6 Direct tax 134.7 115.1 131.9 3.6 -14.6 14.6 51 50.6 55.7 CITA 63.8 59.4 64.6 -4.1 -6.8 8.8 24.1 26.1 27.3 Individuals 38.7 35.9 42.4 18.6 -7.2 18.2 14.6 15.8 17.9 PITA 20.8 8.6 13 3.5 -58.9 52 7.9 3.8 5.5 Indirect tax 45.8 38.2 42.5 4.1 -16.8 11.4 17.3 16.8 17.9 SST 27.7 24.5 27.9 7.7 -11.3 13.7 10.5 10.8 11.8 Excise duties 10.5 8.5 8.8 -2.5 -19.1 3.1 4 3.7 3.7 Import duties 2.7 2 2 -5.7 -25.5 0.7 1 0.9 0.9 Export duties 1.1 0.8 0.9 -31 -28.8 15 0.4 0.4 0.4 NON-TAX REVENUE 83.8 74 62.5 42.5 -11.7 -15.5 31.7 32.6 26.4 Licenses and permits 14.5 13.2 12.7 3.4 -8.7 -3.8 5.5 5.8 5.4 Investment income 60 48.7 36.8 88.3 -19 -24.4 22.7 21.4 15.5 Total Revenue 264.4 227.3 236.9 13.5 -14 4.2 100 100 100 Share of GDP (% ) 17.5 15.8 15.1 ------1 Revised estimate; 2 Budget estimate, excluding 2020 tax measure Source: MOF Economic Report 2020/2021
Similarly, indirect tax collection is expected to rise by 11.4% to RM42.5bn in 2021 (RM38.2bn in 2020), primarily contributed by a higher collection of sales and services taxes (SST). Revenue from SST is projected to be about RM27.9bn in 2021 compared to RM24.5bn in 2020, supported by higher private consumption for instance through higher demand for motor vehicles. Malaysia Automotive Association (MAA) is forecasting the total industry volume to rise by 1.7% in 2021 on the back of new models and ongoing promotional campaigns by automotive sector.
Meanwhile, in line with the Government’s effort to reduce reliance on oil-related revenue, the share of its revenue is projected to fall to 16% of total revenue next year (22% of total revenue in 2020). The Government is expecting the petroleum-related revenue (with the average on a crude-oil price assumption of US$42 per barrel), to register a lower collection of RM37.8bn in 2021 compared to RM50bn in 2020. MOF also guided that dividends from PETRONAS are estimated at RM18bn in 2021 (RM34bn in 2020).
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Higher operating expenditure of RM236.5bn in 2021 Based on the operating expenditure allocation, emolument is expected to expand by 2.3% to RM84.5bn in 2021 (RM82.6bn in 2020) due to annual salary increments for civil servants. Meanwhile, retirement charges are also estimated to increase by 2% to RM27.6bn (RM27.1bn in 2020), which will include pensions payments, gratuity payments and cash awards in place of accumulated leave. Likewise, spending on supplies and services is estimated to rebound to RM32.8bn in 2021 (RM30.1bn in 2020), led by higher outlays for repairs and maintenance as well as allocation for professional services. The biggest allocation or 29.2% of OPEX will be disbursed to the MOH largely for procurement of medical supplies as well as repair and maintenance of medical facilities; whereas 16.0% from the allocation will be received by the MOE for repair and maintenance of school facilities.
Fig 8: Federal Government operating expenditure RM bn Change (%) Share (% of total) 2019 2020 2 2021 3 2019 2020 2 2021 3 2019 2020 2 2021 3 Emolument 80.5 82.6 84.5 0.7 2.6 2.3 30.6 36.4 35.7 Retirement charges 25.9 27.1 27.6 2.8 4.5 2.0 9.8 11.9 11.7 Debt service charges 32.9 34.9 39.0 7.8 6.1 11.6 12.5 15.4 16.5 Grants and transfers to state 7.6 7.7 7.7 -0.4 2.3 -0.1 2.9 3.4 3.3 governments Supplies and services 31.5 30.1 32.8 -10.7 -4.5 8.9 12.0 13.3 13.9 Subsidies and social assistance 23.9 20.1 18.9 -13.1 -15.7 -6.4 9.1 8.9 8.0 Asset acquisition 0.7 0.7 0.5 72.1 -15.6 -16.6 0.3 0.3 0.2 Refunds and write-offs 0.9 1.0 0.5 1.1 10.5 -48.2 0.3 0.4 0.2 Grants to statutory bodies 13.8 14.0 15.4 0.1 1.9 9.9 5.2 6.2 6.5 Others 45.6 1 8.4 9.6 367.3 -81.5 13.5 17.3 3.8 4.0 Total Operating Expenditure 263.3 226.7 236.5 14.0 -13.9 4.3 100 100 100 Share of GDP (%) 17.4 15.8 15.1 ------1 Including a one-off allocation for outstanding tax refunds, 2 Revised estimate, 3 Budget estimate, excluding 2021 Budget measures Source: MOF Economic Report 2020/2021
However, allocation on subsidies and social assistance is expected to decline by 6.4% from RM20.1bn in 2020 to RM18.9bn in 2021, primarily due to the consolidation of cash assistance programmes under Bantuan Sara Hidup (BSH) and Bantuan Prihatin Nasional (BPN).
According to the Medium-Term Fiscal Framework 2021-2023 (MTFF), with the key policy initiatives based on medium-term macroeconomic assumptions, the country’s fiscal deficit position will maintain a path of fiscal consolidation to improve from -5.4% of GDP in 2021 to about -4.2% of GDP in 2022. Over the medium term, the Government is expecting further enhancement and improve to a fiscal deficit target of an average of -4.5%. Although Federal Government debt is expected to rise between 2021 to 2023, it was guided that it will remain at a manageable level.
Fig 9: Fiscal deficit target to account for additional spending Medium-Term Fiscal Framework 2021 - 2023 RMbn % of GDP Revenue 731.0 14.7 Non-oil 609.7 12.3 Oil-related 121.3 2.4 Operating expenditure 730.3 14.7 Current balance 0.7 0.0 Gross development expenditure 212.5 4.3 Less: Loan recoveries 2.0 0.1 Net development expenditure 210.5 4.2 COVID-19 Fund1 17.0 0.3 Overall balance -226.8 -4.5 Primary balance -102.8 -2.1 Underlying assumptions Real GDP growth (%) 4.5-5.5 Nominal GDP growth (%) 5.5-6.5 Crude oil price (US$/barrel) 45-55 Oil production (barrels per day) 580,000 1 A specific trust fund established under Temporary Measures for Government Financing (Coronavirus Disease 2019 (COVID- 19)) Act 2020 to finance economic stimulus packages and recovery plans Note: MTFF estimate, excluding budget measures Source: MOF Economic Report 2019/2020
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Fig 10: Fiscal consolidation path on Medium-Term Fiscal Framework
Note: 2020: Revised estimate, 2021: Budget estimate, excluding 2021 Budget measures Source: MOF Economic Report 2020/2021
Debt level at 60.7% of GDP as at end-September 2020 The Federal Government debt stood at RM874.3bn or 60.7% of GDP as at end- September 2020. In terms of the statutory limit applied to MGS, MGII and MITB, the debt to GDP ratio was 56.6% of GDP as at end-September 2020, which is below the statutory limit of 60% of GDP under the Temporary Measures for Government Financing (Coronavirus Disease 2019 (COVID-19)) Act 2020. The higher debt limit will allow the Government to fund stimulus packages and implement economic recovery measures.
Fig 11: Debt Legislative and Administrative Guidelines
Rules Acts
Purpose of borrowings is to finance development expenditure & COVID-19 Fund Loan (Local) Act 1959 Government Funding Act 1983 Current balance must always in a surplus to ensure operating expenditure in Temporary Measures for Government Financing financed by revenue (Coronavirus Disease 2019 (COVID-19)) Act 2020 Temporary Measures for Government Financing Domestic debt ceiling (MGS, MGII, MITB) not exceeding 60% of GDP (Coronavirus Disease 2019 (COVID-19)) Act 2020 [End September 2020: RM6.5bn] MTB ceiling not exceeding RM10bn Treasury Bills (Local) Act 1946 [End-September 2020: RM6.5bn] Offshore borrowing ceiling not exceeding RM35bn External Loans Act 1963 [End September 2020: RM29.3bn] Limit of debt service charges (DSC) < 15% of revenue Administrative Guideline Federal Constitution Article 98 (1) (b) - Allocation for [2020: RM34.9bn (15.4% of revenue)] debt service charges are charged items Source: MOF Economic Report 2020/2021
Out of the total debt, RM845bn (96.7%) will be domestic debt, while offshore borrowings increased to RM29.3bn (3.3%). The offshore borrowing comprises market loans which are mainly in USD (54.6%) and yen (44.8%) denominated currencies; after including Samurai bond and global sukuk, market loans rose to RM23.9bn in end-September 2020 from RM23.3bn in 2019.
According to MOF, due to the pandemic and the necessary increase in borrowings to support growth, the Government is projecting Federal Government debt to increase to around 61% of GDP in 2021, while the statutory debt to remain around 58% of GDP in 2021. The MOF guided that the Government will continue to finance stimulus measures in 2021 in order to underpin economic recovery while remaining committed to prudent debt management strategies over the medium term.
The Federal Government total gross borrowings are expected to increase by 31.5% from the original estimate to record RM181.5bn or 12.6% of GDP. For 2020, of the total gross borrowings, RM94.7bn will be utilised for principal repayments while RM86.5bn for deficit financing.
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Based on the breakdown provided, the principal repayments comprise maturing Malaysian Government Securities (MGS) of RM30.7bn, Malaysian Government Investment Issues (MGII) of RM40bn, Treasury bills of RM21bn, Government Housing Sukuk (SPK) of RM2.7bn and offshore loans of RM0.3bn. As for 2021, as guided by MOF, against the backdrop of the uncertain economic environment in 2021, gross borrowing requirements are also expected to remain substantial at around 11% of GDP (roughly RM197bn in 2021, based on our estimate). As such, we believe the MGS/MGII issuance to remain large, taking into account the government’s deficit financing requirements as well as refinancing of maturing debts next year. Nevertheless, MOF noted that due to the deep domestic capital market as well as Covid-19 containment measures, long-term funding requirements will be supported and ensure a balanced debt maturity profile and also to meet investors’ demand for government papers.
We believe Malaysia’s banking system continues to record a strong liquidity coverage ratio (LCR) with excess liquidity buffers standing around RM235.9bn as at September 2020. With BNM earlier measures to inject liquidity into the banking system, via cut in statutory reserve requirement (SRR) and flexibility in SRR guideline, where MGS and MGII can be used by banks to meet the SRR compliance, we believe most of the financing operations will likely be raised via domestic sources, supported by country’s healthy economic fundamentals.
Fig 12: Federal Government Financing (2019 – 2020) RM bn % of share 2019 2020 3 2019 2020 3 Gross borrowings 134.8 181.5 100 100 Domestic Debt 127.5 181.5 94.6 99.98 MGS 57.2 73 42.5 40.2 MGII 1 58.5 76.5 43.4 42.1 Treasury bills 11.8 32 8.7 17.6 Offshore borrowings 7.3 0.03 5.4 0.02 Market Loan 7.2 - 5.3 - Project Loan 0.1 0.03 0.1 0.02 Repayments 83 94.7 100 100 Domestic 82.7 94.4 99.6 99.6 Offshore 0.3 0.3 0.4 0.4 Net borrowings 51.7 86.7 - - Domestic 44.8 87 - - Offshore 6.97 -0.3 - - Change in assets 2 -0.2 -0.3 - - Total deficit financing 51.5 86.5 - - 1 Including Sukuk Prihatin in 2020, 2 (+) indicates a drawdown of assets; (-) indicates accumulation of assets, 3 Estimate Source: MOF Economic Report 2020/2021
External debt position remains manageable MOF noted that the country’s external debt position remains manageable as external debt with medium- and long-term tenure made up 58.7% of total external debt, which reflects low refinancing risk. MOF also noted that with the availability of sizeable external assets, this would be able to withstand the impact from external risks.
Fig 13: External debt RM bn % of total % of GDP 2019 2020 3 2019 2020 3 2019 2020 3 Offshore borrowings 560.7 624.3 59.3 62.2 37.2 43.3 Medium and long term debt 344.3 383.2 36.4 38.2 22.9 26.6 Public sector 128.7 154.4 13.6 15.4 8.6 10.7 Federal Government 24 25.1 2.5 2.5 1.6 1.7 Public corporations 104.7 129.3 11.1 12.9 7 9 Private sector 215.7 228.8 22.8 22.8 14.3 15.9 Short term debt 216.4 241.2 22.9 24 14.3 16.7 Non-resident holdings of RM-denominated Government 201 196.6 21.3 19.6 13.3 13.7 debt securities Medium and long term debt 193.3 186.7 20.5 18.6 12.8 13 Federal Government 182.2 176 19.3 17.5 12.1 12.2 Others 1 11.1 10.7 1.2 1.1 0.7 0.8 Short term debt 7.7 9.9 0.8 1 0.5 0.7 Non-resident deposits 102.9 98.8 10.9 9.9 6.8 6.9 Others 2 80.7 83.2 8.5 8.3 5.3 5.8 Total Government Debt 945.4 1002.96 100 100 62.6 69.7 1 Include private sector and public corporations, 2 Comprise trade credits, IMF allocation of Special Drawing Rights and miscellaneous, 3 End-June 2020 Note: Total may not add up due to rounding Source: Bank Negara Malaysia
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Summary of MOF Economic Report 2020/2021
Domestic demand to drive economic recovery in 2021 MOF expects domestic demand to support economic growth in 2021, with growth improving to 6.9%, from -3.0% in 2020. The improvement is expected to be supported by stimulus packages as well as the gradual resumption of economic activity. Domestic demand is also anticipated to be boosted by private expenditure as well as a turnaround in public expenditure. Growth in public sector expenditure is expected to turnaround to a positive growth of 6.7% in 2021 (-2.1% in 2020), led by both public consumption and investment. Public consumption is projected to expand further by 2% in 2021 (1.6% in 2020), led by the continuation of further improvement in public services delivery and optimizing spending.
Growth in public investment is anticipated to expand strongly by 16.9% yoy in 2021 from -9.3% in 2020, supported by the implementation and acceleration of investment in infrastructure for instance, small-scale projects under the stimulus packages and the National Fiberisation and Connectivity Plan (NFCP). Among the major projects which will be prioritised under DE will include the expansion of several airports and construction of hospitals and Klang Valley Double Track Phase 1 (KVDT 1). Besides that, there is also be the continuation of large-scale transport-related projects such as MRT2, LRT3, Rapid Transit System (RTS) and Pan Borneo Highway. Furthermore, there will be investment in new and on-going projects such as the development of O&G-related projects, upgrading of digitalization-related activities and construction of energy plants.
Fig 14: Ministry of Finance GDP forecasts %ppt contribution to GDP Change (%) Share (% of GDP) growth 2019 2020 1 2021 2 2019 2020 1 2021 2 2019 2020 1 2021 2 Real GDP 4.3 -4.5 6.5 - 7.5 100.0 100.0 100.0 4.3 -4.5 6.5 - 7.5 Real GDP by aggregate demand Private Expenditure 6.2 -3.2 7.0 75.6 76.6 76.7 4.6 -2.4 5.4 Consumption 7.6 -0.7 7.1 58.7 61.1 61.2 4.3 -0.4 4.3 Investment 1.6 -11.7 6.7 16.8 15.5 15.5 0.3 -2.0 1.0 Public Expenditure -2.8 -2.1 6.7 18.5 18.9 18.9 -0.5 -0.4 1.3 Consumption 2.0 1.6 2.0 12.2 13.0 12.4 0.3 0.2 0.3 Investment -10.8 -9.3 16.9 6.3 6.0 6.5 -0.8 -0.6 1.0 Domestic Demand3 4.3 -3.0 6.9 94.0 95.5 95.6 4.1 -2.8 6.6 Change in Stocks 61.9 -4.8 -1.9 -1.0 -1.0 -0.9 -0.4 0.0 0.0 Net External Demand 9.7 -24.9 4.1 7.0 5.5 5.4 0.6 -1.8 0.2 Exports4 -1.3 -13.4 8.7 63.7 57.8 58.8 -0.9 -8.6 5.0 Imports4 -2.5 -11.9 9.2 56.7 52.3 53.4 -1.5 -6.8 4.8 Real GDP by Sector Agriculture 2.0 -1.2 4.7 7.1 7.4 7.2 0.1 -0.1 0.3 Mining -2.0 -7.8 4.1 7.1 6.9 6.7 -0.2 -0.6 0.3 Manufacturing 3.8 -3.0 7.0 22.3 22.6 22.6 0.8 -0.7 1.6 Construction 0.1 -18.7 13.9 4.7 4.0 4.2 0.0 -0.9 0.6 Services 6.1 -3.7 7.0 57.7 58.1 58.2 3.5 -2.2 4.1 (+) Import duties -1.2 -13.1 3.6 1.1 1.0 1.0 0.0 -0.1 0.0 1 Revised estimate, 2 Budget estimate, 3 Excludes change in stocks, 4 Goods and non-factor services Source: MOF Economic Report 2020/2021 & Budget speech
Meanwhile, the MOF expects private-sector expenditure to turnaround from -3.2% yoy in 2020 to 7.0% in 2021, backed by higher private consumption and private investment. Growth in private consumption is expected to rise by 7.1% in 2021 from a decline of -0.7% in 2020, supported by increase in disposable income from a rise in domestic economic activities, stronger export earnings, accommodative financial stance, extension of tax relief on childcare as well as favourable stock market conditions. Besides that, MOF also anticipates an improvement in job prospects in tandem with economic recovery next year whilst underpin by measures addressing employability. In terms of tourism, there is an expected improvement in tourist-related industries led by tax incentives on domestic tourism expenses for households. Meanwhile, the wider availability of various e-commerce platforms and roll-out of 5G technology will also boost economic activity in 2021.
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As for private investment, following a contraction of -11.7% in 2020, growth in investment is projected to rebound by 6.7% in 2021 bolstered by various measures and policies such as establishment of funds, especially SMEs as well as tax incentives to attract foreign direct investment (FDI) and assistance to help businesses. Besides that, the private investment is also anticipated to be boosted by spill-over effects from fiscal injection.
Exports to expand in line with improved global trade activities Growth in gross exports is projected to increase by 2.7% in 2021 compared to -5.2% in 2020, supported by improvement in global trade activities and supply chains. Notably, MOF anticipates exports of manufactured goods to increase from -3.8% in 2020 to 2.5% in 2021, supported mainly by exports of both E&E and non-E&E exports. E&E exports are projected to rise by 3% in 2021 compared to -4% in 2020 led by higher demand for semiconductor, telecommunication equipment parts as well as automatic data processing equipment in tandem with global digital transformation and the roll-out of 5G.
Meanwhile, growth in non-E&E exports is projected to rise by 2.1% yoy in 2021 from -3.4% in 2020 amid higher exports of chemicals and chemical products, rubber products and manufactures of metal. Nevertheless, there remain downside risks to the outlook of Malaysia’s trade performance. This was due to growing risk of second wave or third wave of Covid-19 in some countries, where concerns of re-imposition of containment measures may disrupt global supply chains and hamper external demand.
As for agriculture exports, it is forecasted to rise further by 4.4% in 2021 from 0.7% in 2020 amid a rise in palm oil and palm oil-based agriculture products and natural rubber. Likewise, exports of mining goods are also projected to increase by 2.1% in 2021 from -21.8% in 2020 due to better demand for crude petroleum and LNG.
Services sector growth to rebound across all sub-sectors On the supply side, the MOF is projecting that the services sector, which accounts for 58.2% of GDP, to expand from -3.7% in 2020 to 7.0% in 2021, with improvement across all sub-sectors led by the gradual resumption of economic activities. The wholesale and retail trade subsector is also anticipated to grow by 8.5% in 2021 from -6.1% in 2020 backed by food-related industries and the expansion in e-commerce activities in the retail segment. In addition, motor vehicles segment will be boosted by the introduction of new models and higher household disposable income.
Besides that, MOF guided that with the emergence of the fifth-generation cellular network (5G) spectrum, the information and communication subsector is also expected to improve in 2021. Contributing to 11.5% of the services sector, information and communication is projected to grow by 7.9% in 2021 from 6.4% in 2020, where the roll-out of the National Fourth Industrial Revolution (4IR) Policy and Digital Economy Blueprint in 4Q20 is anticipated to improve the productivity and competitiveness of the subsector. Furthermore, the formation of the Malaysian Digital Economy Task Force which center on digital technology, cybersecurity, trade and digital content will also bolster the subsector.
Manufacturing sector led by export- and domestic-oriented industries Meanwhile, growth in the manufacturing sector is projected to expand by 7% in 2021 from -3.0% in 2020, led by both export- and domestic-oriented industries. In particular, the E&E segment is expected to rise in tandem with the digital transformation as work from home and virtual communication continues to be adopted. In addition, MOF anticipates the E&E segment to also be underpinned by a rise in demand for integrated circuits, memory and microchips. Meanwhile, output of chemical and rubber products is projected to also increase in line with the higher demand for disinfectants, sanitisers and rubber gloves.
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Growth in agriculture and mining sector to recover in 2021 Growth in the agriculture sector is expected to expand by 4.7% in 2021, (-1.2% in 2020), supported by higher output of palm oil and rubber. The oil palm subsector is expected to expand by 5.9% yoy in 2021 from -1.3% in 2020, led by recovery in global demand especially from China and India. In addition, MOF projects crude palm oil (CPO) price to remain stable amid an increase in demand following an expected recovery in hotel, restaurant and catering operations alongside higher biodiesel mandate in Indonesia and Malaysia. As for the rubber subsector, it is anticipated to rise by 6% in 2021 from -18.9% in 2020 driven by the increase in global demand in line with the expansion of the automotive industry.
Growth in the mining sector is anticipated to expand by 4.1% in 2021, from -7.8% in 2020, supported by a recovery in global demand for crude oil and condensate and liquefied natural gas (LNG). MOF expects Brent crude oil price to recover to pre- pandemic level in the medium-term from its current projection of US$42 per barrel in 2021.
Civil engineering segment remains the main driver of construction sector The construction sector is projected to improve and expand by 13.9% in 2021, as compared to -18.7% in 2020, due to an acceleration and revival of major infrastructure projects as well as construction of affordable homes. Civil engineering will continue to be the main driver of the sector on the back of ongoing projects such as the Mass Rapid Transit 2 (MRT2), Light Rail Transit 3 (LRT3), West Coast Expressway (WCE) and Bayan Lepas Light Rail Transit (LRT) and the Pan Borneo and Coastal Highways in Sarawak. In the residential segment, it is expected to rise led by various measures by the Government to address the overhang issue. Meanwhile the non-residential segment is expected to recover marginally bolstered by ongoing commercial projects, including Bukit Bintang City Centre, Cyberjaya City Centre, Forest City and Malaysia Vision 2.0.
Current account surplus expected to narrow in 2021 The MOF projects the current account surplus to be at RM48.5bn in 2020, equivalent to 3.4% of GNI, and forecasts the position to narrow to around RM20.3bn in 2021, which represents around 1.3% of GNI, in line with an expansion of domestic industrial and investment activities. The narrower current account surplus is attributed to a lower goods surplus while the primary income and secondary incomes account will see larger deficit in 2021. However, the lower surplus in the goods account of RM113.3bn (RM130.9bn in 2020) will be supported by a gradual recovery in global trade activities. Meanwhile, the larger deficit in the primary account of RM41.6bn in 2021 from RM23.7bn in 2020 will be due to a growth in investment activities on the back of higher repatriation of profits and dividends by foreign investors and net outflows of compensation for foreign professionals. Besides that, larger net outflows from the secondary income account of RM20.6bn in 2021 (RM8.5bn in 2020) will be due to remittances by foreign workers. Meanwhile, a narrower deficit in the services account of RM30.9bn (RM50.3bn in 2020) is due to a surplus in the travel account, on the back of an anticipation of an improvement in tourism activities.
Fig 15: Balance of Payments 2020 1 2021 2 RMbn, unless stated otherwise Receipts Payments Net Receipts Payments Net Balance on goods and services 842.1 761.5 80.6 916.3 833.8 82.5 Goods 750.4 619.5 130.9 778.1 664.8 113.3 Services 91.6 141.9 -50.3 138.2 169.0 -30.9 Transportation 15.0 41.8 -26.8 20.3 52.5 -32.2 Travel 12.4 23.3 -10.9 53.5 35.5 18.0 Other services 64.3 76.8 -12.6 64.4 81.0 -16.7 Primary Income 56.5 80.2 -23.7 62.8 104.4 -41.6 Compensation of employees 6.3 14.6 -8.3 6.8 15.4 -8.5 Investment Income 50.2 65.6 -15.4 56.0 89.0 -33.0 Secondary Income 26.1 34.6 -8.5 17.5 38.2 -20.6 Balance on current account 924.7 876.2 48.5 996.6 976.3 20.3 % of Gross National Income (GNI) 3.4 1.3 1 Estimate, 2 Forecast Source: MOF Economic Report 2020/2021
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Key Budget 2021 proposals – Tax and other measures 1. Additional RM1bn contribution to curb third wave of COVID19 via: – RM475m for purchase of reagent, test kits – RM318m for front liners’ PPE and hand sanitiser – RM150m for National Disaster Management Agency – RM50m to purchase equipment, laboratory supplies and medicine for university hospitals 2. One-off payment of RM500m to front liners, benefiting 100,000 health workers 3. Increase COVID19 fund from RM45bn to RM65bn to cover additional assistance under KITA PRIHATIN package 4. Widen tax relief scope for medical treatment expenses to include vaccination expense against pneumococcal, influenza and Covid-19, up to RM1,000 5. Tax relief limit for serious illness treatment increase to RM8,000 (from RM6,000) 6. Full health screening tax relief increase to RM1,000 (from RM500) 7. Tax relief limit for medical treatment, special needs and parental care increase to RM8,000 (from RM5,000) 8. B40 aid recipients given Perlindungan Tenang Voucher of RM50 9. Allocation of RM25m for Peritoneal Dialysis treatment programme for dialysis patients 10. Monthly financial assistance: - OKU increased from RM250 to RM300; - Older OKU persons to RM500 (from RM350) - Disabled workers increased to RM500 (from RM350) - Children to RM450 (from RM100) per family, RM150 (7-18 years old), RM200 (<6), up to RM1,000 per family 11. Bantuan Sara Hidup replaced with Bantuan Prihatin Rakyat - RM1,200 (Household income 13 35. Increase of hourly allowance from RM6 to RM8 for volunteer firefighters 36. Special financial assistance RM600m to all civil servants Grade 56 and below; retiree and non-pensionable RM300m 37. One-off payment of RM500 for Pingat Jasa Pahlawan Negara recipients 38. RM500 appreciation allowance, on top of RM600 special allowance for front liners 39. Glove companies to make voluntary contribution, collectively RM400m 40. One-off RM150 e-wallet credit for those youth 18-20 years old 41. Tax exemption from sporting expenditure increased from RM2,500 to RM3,000 42. Tax exemption of RM3,000 for PRS contributors 43. Tax exemption extension for companies hiring former convicts and drug addicts 44. Freeze new import license for cigarettes 45. Tighten the renewal of import licenses for cigarettes 46. Restriction of transhipment of cigarettes to selected ports only 47. Imposition of tax with drawbacks on all transhipped and re-exported cigarettes 48. Duty-free islands to see imposition of tax on cigarette and tobacco products 49. 10% imposition of excise duty on e-cigarettes and non-electronic cigarettes, including vape 50. RM1bn digital transformation scheme 51. RM150m grants for the digitalisation and automation of SMEs 52. RM50m funding scheme provided to Bumiputera contractors by MARA 53. RM50m for the maintenance and restoration of tourism facilities nationwide 54. RM35m for the Malaysia Healthcare Travel Council 55. RM1,000 special grant for traders, hawkers, taxi drivers, e-hailing drivers and tour guides in Sabah 56. Environment: RM50m to clean rivers, RM40m to strengthen enforcement and monitoring, RM10m for Johor and Terengganu waste management projects 57. RM20m for the hiring of 500 former soldiers and police, as well as Orang Asli, to patrol forests 58. RM3.8bn infrastructure spending including the construction of bridges and roads in several states 59. RM780m development fund for projects in Johor, Kelantan, Kedah, Sarawak and Sabah 60. RM150m raw water transfer project 61. EPF to proceed with estimated RM50bn Kwasa Damansara development, which includes commercial and residential properties 62. Allocation of RM5.1bn and RM4.5bn to improve infrastructure, health and education facilities in Sabah and Sarawak respectively. 63. Extension of tax incentives for economic corridors extended until 2022 64. RM15bn allocated for transport infrastructure projects including Pan Borneo Highway, Gemas-Johor Bahru project and Klang Valley Double Track project. High Speed Rail project to proceed, subject to discussions with Singapore 65. RM16m latex production incentives 66. Training and placement of 8,000 affected airlines employee with RM50m allocation 67. Tax incentives for companies producing Covid-19 vaccines to invest in Malaysia 68. RM1bn allocated to encourage investments in technology, including R&D for the electronic and aerospace industries 69. Allocate RM1.5bn to implement Jaringan PRIHATIN programme, to ensure internet connectivity for B40 group, translating to a credit of RM180/person 70. RM2.7bn development expenditure for rural infrastructure projects: RM1.3bn road, RM632m water, RM355m new houses including repairs, RM250m electricity, RM121m lamp posts 71. RM19m for national health programmes to encourage healthier lifestyles 72. RM103m to build, upgrade and maintain sporting facilities 73. RM170m for early childhood education under KEMAS 74. RM158m for social and development programmes for the Orang Asli community 75. RM50m for repair and maintenance of houses of worship under local councils 76. RM100m to empower the Indian community’s socio-economic development 77. RM177m to the Chinese community for education facilities and new villages 78. RM30m to establish kindergartens in government buildings especially hospitals 79. RM21m for social support centres set-up 80. RM95m provided to micro credit financing for women entrepreneurs 81. RM10m cervical cancer screening and subsidy incentives 82. RM500 one-off payment to religious teachers and leaders 14 83. RM1.4bn allocation to Prime Minister’s department for Islamic affairs 84. RM4.6bn allocation to empower Bumiputera entrepreneurs 85. RM500m Jendela initiative, to boost internet connectivity in schools 86. GLCs/GLICc contribute RM150m to CERDIK fund for the purchase of laptops 87. RM7.4bn for MCMC to increase broadband service in 2021 and 2022 88. Allocate RM1bn for reskilling and upskilling programmes 89. Introduce MySTEP to offer 50,000 job opportunities in public and GLC with an allocation of RM700m 90. Allocate RM2bn to continue Penjana Kerjaya programme under SOCSO 91. Allocate RM1.5bn to extend wage subsidy programmes for another three months, particularly in the tourism sector (RM600/month for salary 15 Budget 2021 impact on sectors under coverage Construction (Neutral) – Higher infrastructure spending and revival of mega projects Comments Main Measures Allocation for development expenditure increased to RM69bn in Budget 2021 from RM50bn in Budget 2020. In addition, there is an allocation of RM2bn for contingency development expenditure. RM2.7bn allocated for 920-km of rural roads, street lighting, water and electricity supply projects. RM1.5bn allocated for the upgrading and repair of schools. RM0.5bn allocated to build 1,000 units of housing for Army personnel. New water treatment plant to be built in Kubang Pasu. RM2.5bn allocated for small construction projects to be undertaken by contractors in Grade 1-4. RM15bn allocated for transport infrastructure projects including Pan Borneo Highway (PBH), Gemas-Johor Bahru Double Tracking, Klang Valley Double Tracking Phase 1. RM3.8bn allocated for new projects such as Klang Third Bridge Phase 2, continuation of Central Spine Road, upgrading bridge across Sungai Marang in Terengganu, upgrading Gerik-Kulim Federal Road, upgrading Pulau Indah Ring Road Phase 3 in Klang, construction of PBH Sabah (Serusop-Pituru stretch) and Cameron Highlands Bypass Road. Other projects to be implemented are Johor Bahru-Woodland Rapid Transit System, Klang Valley MRT Line 3 (MRT3) and Kuala Lumpur-Singapore High Speed Rail (HSR). RM780m for development project in 5 Regional Corridors of Economic Development in 2021. Projects to be implemented are Iskandar Bus Rapid Transit (BRT) under IRDA, Palekbang Bridge in Kota Bahru, Kelantan, under ECER, infrastructure for Special Development Zone in Yan and Baling, Kedah, under NCER, infrastructure for Samalaju Industrial Area in Sarawak under Score and Sapangar Bay Container Port Expansion in Sabah under SDC. RM150m for Raw Water Transfer project from Sungai Kesang and Tasik Biru to the Jus Reservoir in Jasin, Melaka. EPF will continue the development of Kwasa Damansara with gross development value of RM50bn. Development expenditure allocation of RM5.1bn for Sabah and RM4.5bn for Sarawak for building and upgrading water, electricity and road infrastructure, health and education facilities. Key Implications The Budget 2021 development expenditure allocation of RM69bn (+38% yoy) was higher than our forecast of RM60bn and Budget 2020 allocation of RM50bn. Positive for the construction sector as more infrastructure projects will be implemented in 2021. As we expected, the government has decided to revive the RM21bn MRT3 and RM60bn HSR projects. These mega infrastructure projects will improve prospects for listed contractors to expand their order books in the long run. Potential beneficiaries are HSS (engineering consultant), Gamuda, MRCB, IJM Corp, SunCon, WCT and YTL Corp (contractors). HSS is involved in the projects under IRDA and NCER, and PBH Sabah currently. Hence, it could win additional contracts with the additional allocations to develop these regions. Gabungan AQRS is bidding for PBH Sabah packages but not the Serusop-Pituru stretch mentioned in Budget 2021. Taliworks and HSS are potential beneficiaries of water supply projects to be implemented. MRCB is the Project Delivery Partner (PDP) for Kwasa Damansara. The continuation of this project will drive earnings growth in the long run. Recommendations Overall, we believe the higher infrastructure spending in 2021 is positive for the construction sector after the slowdown in major government project awards since 2018. Our main concerns are execution risks and political uncertainties. We 16 maintain our NEUTRAL call on the Construction Sector. Our top BUYs are Gamuda, SunCon, HSS and AME. Source: MOF, Affin Hwang Consumer (Neutral) – Higher cash assistance and broad-based measures to support consumer sentiment Comments Main Measures Allocation of RM6.5bn in cash assistance under Bantuan Prihatin Rakyat (BPR) expected to benefit c.8.1m recipients. Other major broad measures (with total allocation/expected value in RM) include: a) One-off payment of RM500 to front liners, benefiting 100,000 health workers (RM800m) b) Increase in monthly financial assistance for vulnerable groups benefitting 400k households (RM700m) c) Reducing income tax rate by 1ppt for chargeable income band of RM50,000-RM70,000 benefitting 1.4m taxpayers. d) Employee’s minimum EPF contribution reduced to 9% from 11% for a period of 12 months. (RM9.3bn) e) EPF members eligible to withdraw RM500/monthly from EPF Account 1 for 12 months, up to RM6,000/year (RM4bn) Key Implications Budget 2021’s BPR at RM6.5bn is 30% higher* than that of Budget 2020’s Bantuan Sara Hidup (BSH) at RM5bn. A broader base of c.8.1m recipients is expected to benefit from the latest cash assistance (BSH: 4.3m beneficiaries), which augurs well for the lower-income households segment who typically have a higher marginal propensity to spend. *To note, on top of Budget 2020’s BSH, a series of economic stimulus were introduced throughout the year, with direct cash assistance totalling to c.RM20bn. Other major broad-based measures include (i) one-off cash handouts to front- liners, vulnerable groups, fishermen, farmers, (ii) income tax reduction, (iii) EPF contribution reduction, (iv) targeted loan repayment assistance and (v) extended targeted wage subsidy – will similarly provide further impetus to consumption spending. All in, we view Budget 2021 as marginally positive against Budget 2020 (excluding 2020 economic stimulus packages) and remains largely accommodative to households particularly under the RM5,000 income bracket. Separately, the government announced stricter measures in addressing smuggling of high-duty goods. On top of that, an excise tax of 10% is imposed on all types of electronic and non-electronic cigarettes including vape. The former comes as a positive for BAT, as (i) stricter ports/border control should aid in clamping down on the illegal tobacco market while the latter may augur well as (ii) higher prices for vapes could marginally level the playing field for legal players in terms of pricing competition. Recommendations We retain our NEUTRAL rating on the consumer sector. While increase in allocation and other broad based measures are a welcome boost in lifting consumer sentiment, we are of the view that continued uncertainties of the pandemic outbreak remains a major hindrance, and hence may render a move into the cyclical / consumer discretionary names too early. For sector exposure, our top pick remains QL Resources (BUY: TP RM7.11) while we also favour Ajinomoto (BUY: TP RM18.60) in view of the groups’ defensive core businesses and a relatively stable earnings delivery. Meanwhile, we keep our rating unchanged for BAT (SELL: TP RM9.20) at this juncture as we await more evidence of the effectiveness in clampdown of the illegal market which currently remains at an elevated 70% of the nicotine industry. Source: MOF, Affin Hwang 17 Financial Sector (Neutral) – More assistance for the B40 and M40 borrowers Comments Main Measures A second enhanced initiative of the Targeted Loan Repayment Assistance for B40 borrowers who are Bantuan Prihatin Rakyat recipients and micro enterprises with loans of up to RM150,000 will be offered two options, either to have an additional loan moratorium of 3 months or reduce monthly repayment by 50% for a period of 6 months. For M40 borrowers, the application for a repayment assistance will be simplified with a self-declaration of a reduction in income in order to secure their repayment assistance. The facility for B40 and M40 will commence in December 2020. Financing facility of RM300m for Bumiputera micro and small businesses through SME Bank and RM1.2bn micro credit financing through TEKUN, PUNB, Agrobank, BSN and other financial institutions. Financial assistance for peer-to-peer financing (P2P) platforms (RM50m) and equity crowd funding platforms (RM30m). Key Implications Though any further loan moratorium or restructuring & rescheduling (R&R) will result in ‘modification loss’ for banks, the budget measure proposed for the B40 and M40 will not have a significant impact to the banking sector compared to the previous measure of an automatic moratorium for all individuals and SME loans. The overall banking sector loan exposure to the lower income group (the vulnerable segment) account for 17% of banking system loans. Minimal impact to the larger banking players as their focus is not on SME micro- financing. Recommendations Maintain Neutral. Though share prices of the banking stocks have priced-in the worst quarterly earnings in 2Q20, we continue to stay cautious as there could still be downside risks subsequent to the 2nd wave of the Covid-19 pandemic. Meanwhile, it is also too early to tell if asset quality of the banks has stayed intact post-loan moratorium in Sept20 while repayments of all outstanding loans have been on track. Our preferred pick:- Aeon Credit (BUY, TP: RM13.00 based on a 13x P/E target on CY21E EPS). Source: MOF, Affin Hwang Healthcare (Neutral) – Allocating a higher budget to fight Covid-19 and relaxing tax to attract investments Comments Main Measures Allocation of RM1bn to stem the third wave of Covid-19. This allocation will cover the purchase of reagent, test kits, consumables, PPE, hand sanitisers, equipment and to the National Disaster Management Agency to coordinate efforts to fight Covid-19. The government is committed to acquire Covid-19 vaccine supplies, including through participation in the Covid-19 Vaccine Global Access (COVAX) programme. These Covid-19 supplies are expected to cost more than RM3bn. Expanding the scope of the tax relief scope for medical treatment expenses covering vaccination expenses such as pneumococcal, influenza and Covid-19. Increase the tax relief limit on medical expenses for self, spouse and child for serious diseases from RM6,000 to RM8,000. Allocate RM90m for pneumococcal vaccine programme, RM25m for home-based Peritoneal Dialysis treatment programme, and RM10m for cervical cancer screening and subsidy incentives for mammograms to women who are of high risk of breast cancer. Allocate RM100m for the conduct of research relating to infectious diseases covering vaccine development as well as treatment research and diagnostics. To enable Malaysia to become an investment destination especially for locally produced vaccines, medicines and medical devices, the government will strengthen the Ministry of Health’s Off-Take Agreement Programme to attract investment. To encourage manufacturers of pharmaceutical products including 18 vaccines to invest in Malaysia, the government will provide incentive including preferential tax rate of 0 to 10% for 10 years. Broaden the mySalam’s coverage to medical device such as heart stent and prosthesis. Key Implications Facing the unprecedented challenge of Covid-19, the government is allocating RM31.9bn for the public health sector, a 4.3% increase from the 2020 budget. Also, the government has introduced a host of tax relief for medical treatments and incentives to attract investments from the manufacturers of pharmaceutical / medical products. Broadly, we expect these measures to benefit the pharmaceutical companies but their impact to the healthcare providers (ie. private hospitals) should be relatively muted. Recommendations Maintain Neutral. While positive, we do not expect the budget measures to have material impact to the healthcare sector. For exposure, our preferred pick is IHH (HOLD, TP: RM5.50) for its leading position as a premium healthcare provider with growing presence in countries where healthcare demand is underserved. The positive long-term outlook is, however, fairly reflected in its valuation. Source: MOF, Affin Hwang Plantation (Neutral) – Assistance for smallholders and Felda settlers Comments Main Measures Government will allocate RM400m to write-off the interest on Felda settlers’ debt as well as development programmes for settlers to generate additional income. Allocation of RM20m to continue Malaysian Sustainable Palm Oil Certification (MSPO) to boost growth and enhance the competitiveness of the country’s palm oil industry. Matching grants of RM30m to encourage the industry’s investment in mechanization and automation. Key Implications We believe the smallholders and Felda settlers will benefit from the Government’s assistance as it can help to enhance competitiveness and improve productivity. Recommendations Sector-wise, we maintain our NEUTRAL rating. Across our coverage, we have BUY ratings on Ta Ann, IJM Plantations, Jaya Tiasa, Hap Seng Plantations and Genting Plantations; HOLD ratings on IOI Corp, SD Plantation and KL Kepong; and a SELL rating on FGV. Source: MOF, Affin Hwang Property (Neutral) – Stamp duty exemption extended for affordable housing up to 2025 Comments Main Measures Stamp-duty exemption on instrument of transfer and loan agreement for the purchase of first residential property priced up to RM500k by Malaysian citizens. The stamp-duty exemption is for sale and purchase agreement executed from 1 January 2021 to 31 December 2025. Stamp-duty exemption on instrument of transfer and loan agreement for abandoned housing projects executed from 1 January 2021 to 31 December 2025. RM1.2bn allocated for 14,000 low-cost housing units under Program Perumahan Rakyat (RM500m), 3,000 units of Rumah Mesra Rakyat by SPNB (RM315m), maintenance of low-cost housing (RM125m), Malaysia Civil Servants Housing Programme (RM310m). Government will collaborate with selected financial institutions to provide a Rent- to-Own (RTO) Scheme involving 5,000 PR1MA houses to be built with a total value of more than RM1bn for first-time home buyers. Key Implications The stamp-duty exemption is effectively extended for an additional 5 years and expanded to include the entire amount of stamp duty for first-time home purchase with value up to RM500k. Previously, 100% stamp-duty exemption was 19 granted for first-time home purchase priced up to RM300k and the first RM300k for homes priced at RM300-500k transacted in 2019-2020. The extension/expansion of the stamp-duty exemption is positive as it will benefit first-time home-buyers purchasing homes priced below RM500k, which comprise 84% of total residential properties transacted in 1H20. It will help to clear the overhang of residential properties priced below RM500k, which comprise 57% of the total overhang units (31,661 units). There is minimal impact from the low-end housing to be developed under the government agencies as they do not compete with the listed property developers that focus of medium and high-end housing market. However, this measure has a minimal impact in the medium term as the government has already granted stamp-duty exemptions under the Home Ownership Campaign up to 31 May 2021. Recommendations We reiterate our NEUTRAL call on the Property Sector. The measures announced have a minimal impact for property developers in the medium term but will support a recovery in demand over the long term. Measures in the property developers wish list such as lower compliance costs and exemptions from the requirement to build low-cost housing for development projects were not implemented. Our top BUYs are IOI Properties and UOA Development. Source: MOF, Affin Hwang Rubber (Overweight) – One-off donation to help the country Comments Main Measures The big-4 glove manufacturers have committed to donate RM400m to the government to procure a COVID-19 vaccine and the required medical equipment. Key Implications The one-off donation is likely to reduce our (non-core) earnings forecasts by an estimated 3-5%. The voluntary donation is better off than the speculated windfall tax, as it would not reduce the glove manufacturers’ competitiveness when demand starts to normalize. Recommendations Top Glove and Hartalega remain our top BUY picks for the sector, as we believe that ASPs will continue to increase in the coming months given the rising COVID-19 cases globally which will spur demand for gloves. Source: MOF, Affin Hwang Telco (Neutral) - Connecting people and businesses Comments Main Measures The government will allocate RM1.5bn to implement the Jaringan PRIHATIN Programme to alleviate the financial burden of the B40 group in accessing internet services. An estimated 8m individuals in the B40 category will each be eligible to receive a telecommunication credit worth RM180. This credit can be used for internet subscription, or defray part of the cost to buy new mobile phones. Also, the telcos will match by providing benefits valued at RM1.5bn such as free data. The government recognizes the need for telecommunication networks as a third utility. In the new norm, virtual services are becoming more common. The development of infrastructure and upgrading of basic telecommunications networks is necessary to meet the needs of a digital lifestyle. Therefore, the government will allocate RM500m to implement the National Digital Network initiative, Jendela, to ensure the connectivity of 430 schools throughout Malaysia covering all states. At the same time, Malaysian Communications and Multimedia Commission (MCMC) will allocate RM7.4bn for years 2021 and 2022 to build and upgrade broadband services. Key Implications We are pleasantly surprised to hear of the RM1.5bn allocation to the B40 group. The RM180 telecommunication credit works out to approximately RM15/month, equivalent to approximately 50% of the monthly ARPU for a prepaid user. The 20 allocation should ease the downward pressure on the telcos’ service revenue and support their profit margins. Elsewhere, we do not expect the telcos to incur additional costs or face substantial revenue losses by providing the RM1.5bn worth of benefits, such as free data. The telcos had provided free data (up to 1Gb/day) during the MCO / CMCO period and increased the data quotas for its postpaid subscribers, and these freebies did not have a significant impact to their 2Q/3Q20 service revenue. The allocation for Jendela project is somewhat expected. To recap, the government had on 29 August 2020 introduced the Jendela project as part of its efforts to improve digital communication in the country. Under the Phase 1 that runs from now to end-2022, the government aims to expand the 4G mobile broadband coverage from 91.8% to 96.9% in populated areas and aims to enable 7.5m premises to have gigabyte speed fixed-line broadband coverage by 2022, from 4.95m currently. The Jendela project, which comprises several phases, is estimated to cost RM21bn. Recommendations Overall, the budget is positive on the telcos sector. We expect the B40 group to spend most of the RM180 telecommunication credits on the mobile services, and hence, the cellcos are the bigger beneficiaries from this budget, compared to the fixed broadband providers. We maintain our Neutral call on the sector. While the RM1.5bn allocation may temporarily ease the pressure on the sector’s service revenue, the stiff competition, gradual decline in ARPUs, as well as rich valuations should cap the upside to the share prices. Maxis (HOLD, TP RM5.35) is our relative preference among the cellcos for its superior network infrastructure and first-mover advantage in developing the converged solutions for individuals, homes and businesses. However, our sector top pick is TM (BUY, TP RM5.00). In general, we prefer the fixed broadband players to mobile operators due to the growing demand and relatively muted competition. Besides, we also like TM for its extensive fibre infrastructure (an essential asset in the deployment of 5G service) and its attractive valuation. Elsewhere, we do not expect the Jendela plan to have material impact to the telcos under our coverage, but the allocations likely should be positive for the telco engineering services and construction companies, such as REDtone (RIB MK), Binasat (BINACOM MK), Opcom (OHB MK), OCK Group (OCK MK) and Rohas Tecnic (RTEC MK) (all not rated). Source: MOF, Affin Hwang 21 Focus Charts Fig 16: Rolling forward PE Fig 17: Rolling forward P/B 12-month rolling forward core PE 5 Year Average Rolling 12m Forward PB Ratio 5 Year Average 24.5 2.40 23.5 +2SD: 22.6X 2.20 22.5 +2SD: 2X 2.00 21.5 +1SD: 20.9X +1SD: 1.9X 20.5 1.80 Avg: 1.7X Avg: 19.2X 19.5 -1SD: 1.6X 1.60 18.5 -2SD: 1.5X -1SD: 17.5X 17.5 1.40 06/11/20: 18.1X 16.5 -2SD: 15.7X 1.20 06/11/20: 1.5X 15.5 1.00 14.5 Nov-15 Nov-16 Nov-17 Nov-18 Nov-19 Nov-20 Nov-15 Nov-16 Nov-17 Nov-18 Nov-19 Nov-20 Source: Affin Hwang forecasts, Bloomberg Source: Affin Hwang forecasts, Bloomberg Fig 18: Foreign flow vs KLCI Fig 19: Foreign ownership stable at 21.1% (%) RM bn Foreign flows (LHS) Foreign ownership (RHS) % 26.0 8.0 27 October 2020: 21.1% 25.0 6.0 26 4.0 25 24.0 2.0 24 23.0 0.0 23 (2.0) 22.0 22 (4.0) 21.0 (6.0) 21 20.0 (8.0) 20 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Jan-16 Jan-18 Jan-19 Jan-20 Jan-17 Source: Affin Hwang, Bloomberg Source: Affin Hwang, Bloomberg 22 Fig 20: Sector earnings growth and valuations Source: Companies, Affin Hwang, Bloomberg Fig 21: Sector positioning Overweight Neutral Underweight Rubber Products Banks & Financial services MREIT Gaming Auto & Autoparts Construction Oil & Gas Media Building Materials Consumer Plantation Transport & Logistics Utilities EMS Property Healthcare Technology Insurance Telco Source: Affin Hwang 23 Fig 22: Top Buy and Sell calls Core EPS Growth Ticker Stock Rating Price TP Mkt Cap Core PE (x) (%) PBV Div. Yield (%) ROE (%) (RM) (RM) (RMm) CY20E CY21E CY20E CY21E CY20E CY21E CY20E CY21E CY20E CY21E Top buys: TOPG MK TOP GLOVE BUY 8.50 15.45 69,222.5 18.6 12.3 325.8 51.1 11.0 7.6 2.7 4.1 59.8 62.7 HART MK HARTALEGA BUY 18.20 27.10 62,382.4 34.3 25.8 313.7 33.1 2.0 2.0 1.8 2.3 56.4 57.7 DLG MK DIALOG BUY 3.80 4.30 21,429.4 35.3 32.8 8.2 7.3 19.3 14.9 1.0 1.2 13.9 13.7 T MK TELEKOM BUY 4.20 5.00 15,849.3 18.4 20.7 (14.0) (10.9) 1.0 0.9 2.7 2.4 11.2 9.5 QLG MK QL RESOURCES BUY 6.52 7.11 15,867.4 62.4 55.6 8.8 12.2 4.9 4.5 0.7 0.7 11.9 12.3 SIME MK SIME DARBY BUY 2.47 2.76 16,799.6 15.8 15.3 (0.7) 3.6 5.7 5.3 4.1 4.3 7.0 7.0 INRI MK INARI BUY 2.68 3.07 8,789.9 46.9 30.8 17.1 52.4 7.4 6.9 1.8 2.3 15.1 21.5 SCI MK SCIENTEX BUY 11.92 13.20 6,161.0 14.6 13.6 21.1 6.2 1.2 1.2 1.9 2.2 15.3 14.6 ACSM MK AEON CREDIT BUY 9.65 13.00 2,463.7 11.9 9.4 (28.7) 26.2 1.5 1.4 2.9 3.7 12.9 14.7 HSS MK HSS ENGINEERING BUY 0.45 0.82 220.7 21.6 14.0 702.1 53.8 2.2 2.0 - - 4.6 6.6 Top sells: MRC MK MRCB SELL 0.43 0.43 1,875.1 91.9 96.7 (159.6) (5.0) 0.4 0.4 4.1 4.1 0.5 0.4 MPR MK MEDIA PRIMA SELL 0.17 0.13 183.0 (4.2) (11.6) (30.0) (64.2) 0.3 0.3 - - (7.9) (2.9) Source: Affin Hwang forecasts, closing prices as of 6 November 2020 24 APPENDIX 1 – KEY DATA AND FORECASTS 2019 9 2020 10 2021 11 Population (million) 32.4 32.7 33.1 RMbn %yoy RMbn %yoy RMbn %yoy DOMESTIC PRODUCTION Gross Domestic Product (constant 2015 prices) 1,421.5 4.3 1,357.7 -4.5 1,450.8 6.5 - 7.5 Agriculture 101.5 2 100.3 -1.2 105.1 4.7 Mining and quarrying 101.4 -2 93.6 -7.8 97.4 4.1 Manufacturing 316.3 3.8 306.8 -3.0 328.2 7 Construction 66.3 0.1 53.9 -18.7 61.3 13.9 Services 820.1 6.1 789.4 -3.7 844.6 7 Import duties 15.8 -1.2 13.7 -13.1 14.2 3.6 Gross Domestic Product (current prices) 1,510.7 4.4 1,439.4 -4.7 1,568.1 8.6 - 9.6 Final Consumption expenditure Public 176.7 2.2 179.8 1.8 183.7 2.2 Private 903.7 8.7 899.1 -0.5 987.2 9.8 Gross fixed capital formation Public 3 94.4 -9.7 85.5 -9.4 100.3 17.3 Private 252.5 2.7 222.0 -12.1 239.9 8 Changes in inventories and valuables -29.0 - -27.7 - -25.5 - Exports of goods and services 985.3 -0.7 842.1 -14.5 916.3 8.8 Imports of goods and services 872.9 -2.5 761.5 -12.8 833.8 9.5 NATIONAL INCOME AND EXPENDITURE Gross National Income (constant 2015 prices) 1,398.9 4.8 1,344.4 -3.9 1,428.0 6.2 Gross National Income (current prices) 1,470.4 4.9 1,415.7 -3.7 1,526.5 7.8 Gross National Savings (current prices) 367.7 -2.5 328.3 -11 335.0 2 Per capital income (current prices, RM) 45.2 4.4 43.4 -4.1 46.1 6.3 FEDERAL GOVERNMENT FINANCE 2019 2020 12 2021 13 Revenue 264.4 13.5 227.27 -14 236.9 4.2 Operating expenditure 263.3 14 226.7 -13.9 236.5 4.3 Current balance 1.1 - 0.6 - 0.36 - Development expenditure (net) 52.6 -4.9 49 -6.8 68.2 39.2 Overall Balance -51.5 - -86.5 - -84.5 - % to GDP -3.4 - -6 - -5.4 - Domestic borrowings (net) 44.8 - 87.1 - - - Offshore borrowings (net) 7.0 - -0.3 - - - Change in assets 4 -0.2 - -0.3 - - - RMbn % GDP RMbn % GDP RMbn % GDP Federal Government Debt 5 793.0 52.5 874.3 60.7 - - Domestic debt 764.2 50.6 845.0 58.7 - - Treasury Bills 4.5 0.3 24 1.7 - - Malaysian Government Investment 338.8 22.4 360.3 25 - - Issues Malaysian Government Securities 394.1 26.1 436.7 30.3 - - Government Housing Sukuk 26.8 1.8 24.1 1.7 - - Offshore borrowing 28.8 1.9 29.25 2.0 - - Market loan 23.3 1.5 23.9 1.6 - - Project loans 5.4 0.4 5.4 0.4 - - 2019 9 2020 10 2021 11 BALANCE OF PAYMENTS (NET) RM bn RM bn RM bn Balance on Current Account 50.9 48.5 20.3 Goods 123.3 130.9 113.3 Services -10.9 -50.3 -30.9 Primary income -40.3 -23.7 -41.6 Secondary income -21.3 -8.5 -20.6 Balance on capital and financial accounts -33.5 - - Net Errors & Omissions -9.0 - - Overall Balance 8.4 - - 25 APPENDIX 1 – KEY DATA AND FORECASTS (continued) 2019 9 2020 10 2021 11 EXTERNAL TRADE RM bn %yoy RM bn %yoy RM bn %yoy Gross Exports 995.1 -0.8 943.8 -5.2 968.8 2.7 Manufacturing 840.6 0.4 808.9 -3.8 828.9 2.5 Agriculture 66.0 -1.6 66.4 0.7 69.4 4.4 Mining 81.5 -9.3 63.8 -21.8 65.1 2.1 Gross Imports 849.4 -3.5 794.7 -6.4 837.0 5.3 Intermediate goods 467.2 1.1 437.4 -6.4 460.3 5.2 Capital goods 100.2 -10.9 87.6 -12.5 100.2 14.3 Consumption goods 74.155 1.5 74.7 0.8 77.0 3.0 Total trade 1,844.5 -2.1 1,738.5 -5.7 1,805.7 3.9 Trade balance 145.7 17.7 149.0 2.3 131.8 -11.5 PRICES Index %yoy Index %yoy Index %yoy Consumer Price Index (2010 = 100) 121.5 0.7 - -1.0 - 2.5 Producer Price Index: Local Production (2010 = 100) 105.2 -1.4 102.314 -2.414 - - Thousand LABOUR Thousands %yoy %yoy Thousands %yoy s Labour force 15,581.6 2.0 15,737.415 1.015 15,910.5 1.115 Unemployment 6 508.2 (3.3) 653.515 (4.2)15 562.6 (3.5)15 2019 End - August 2020 End August FINANCIAL AND CAPITAL MARKETS RM bn %yoy RM bn %yoy Money supply M1 426.6 3.8 502.3 17.8 M2 1,896.0 4.1 2,027.0 6.9 M3 1,908.7 4.2 2,031.4 6.4 Banking system (including Islamic banks) Fund 1,985.8 5.2 2,074.0 4.4 Loans 1,645.4 3.9 1,704.9 3.6 Loan-to-fund ratio (%) 82.9 82.2 Interest rates (average rates, %) August August 3-month interbank 3.32 1.96 Commercial banks Fixed deposits: 3 mths 2.92 1.62 12 mths 3.09 1.78 Savings deposit 0.99 0.48 Weighted base rate (BR) 3.68 2.43 Base lending rate (BLR) 6.71 5.49 Treasury bills (3-month) - - Malaysian Government Securities 8 1 year 3.09 1.70 5 year 3.24 2.11 End - September End September RM per RM per MOVEMENT OF RINGGIT %yoy 16 %yoy 16 unit of unit of Special Drawing Rights (SDR) 5.7121 1.6 5.8522 -2.4 US Dollar 4.187 -1.1 4.1585 0.7 Euro 4.5776 5.4 4.8775 -6.1 100 Japanese Yen 3.8788 -6.0 3.9378 -1.5 Bursa Malaysia FBM KLCI 1,583.9 1,504.8 Market capitalisation (RM bn) 1,673.6 1,638.7 1 Includes the Federal Territory of Kuala Lumpur and Federal Territory of Putrajaya, 2 Includes the Federal Territory of Labuan, 3 Includes investment of public corporations, 4 Positive data indicate drawdown of assets; negative indicates accumulation of assets, 5 For 2020, data is at the end-September 2020, 6 Figures in parentheses shows the unemployment rate, 7 Funds comprises deposits (exclude deposits accepted from banking institutions and BNM) and all debt instruments issued (including subordinated debt, debt certificates / sukuk, commercial papers and structured notes), 8 Market indicative yield, 9 Preliminary, 10 Estimate, 11 Forecast, 12 Revised estimate, 13Budget estimate, excluding 2021 Budget measures, 14 January to August 2020, 15 Forecast by MOF Malaysia, 16 Annual rate of appreciation (+) or depreciation (-) of the ringgit Note: Total may not add up due to rounding Source: MOF Malaysia 26 APPENDIX 2: Ratings, price target and earnings estimates Core EPS Core EPS Core PE Core PE Rec Price Price Upside Market Grow th (%) Grow th (%) (x) (x) Yield (%) Yield (%) ROE (%) ROE (%) Company name Current Target /Dow nside Cap 2020E 2021E 2020E 2021E 2020 2021 2020E 2021E (RM) (RM) (%) (RMm) Auto & Autoparts 22,998 (16.3) 11.4 16.2 14.6 2.8 3.3 5.3 6.0 APM AUTOMOTIVE HOLD 1.76 1.50 (14.77) 344.07 (78.5) 140.6 49.5 20.6 1.2 2.9 0.5 1.3 BERMAZ AUTO HOLD 1.25 1.35 8.00 1,451.85 (33.4) 22.4 13.6 11.1 3.9 3.6 20.9 22.2 MBMR HOLD 2.89 3.20 10.73 1,129.67 (49.2) 20.6 10.6 8.8 3.8 4.6 5.8 6.6 OCEANCASH HOLD 0.71 0.83 16.90 185.17 (17.2) 34.9 29.9 22.2 1.4 1.4 6.3 8.4 PECCA HOLD 1.51 1.11 (26.49) 260.75 (15.4) 23.9 26.9 21.7 3.5 4.0 6.4 7.8 SIME DARBY BUY 2.47 2.76 11.74 16,799.58 (0.7) 3.6 15.8 15.3 4.1 4.3 7.0 7.0 UMW HOLD 2.42 2.80 15.70 2,827.27 (41.2) 53.9 24.2 15.7 1.7 2.7 1.9 2.8 Exchanges & non-financials 9,742 11.9 (3.7) 17.1 17.7 3.8 3.9 19.2 17.2 AEON CREDIT BUY 9.65 13.00 34.72 2,463.72 (28.7) 26.2 12.1 9.6 2.9 3.7 12.9 14.7 BURSA M'SIA HOLD 8.50 8.54 0.47 6,876.73 80.0 (23.5) 20.6 26.9 4.4 3.3 38.3 30.1 ELK-DESA HOLD 1.35 1.40 3.70 401.20 (18.9) 10.5 14.3 13.0 4.2 4.6 6.4 6.9 Banks & Financial Services 232,530 (32.9) 18.8 13.5 11.3 2.9 3.8 6.8 7.3 ALLIANCE BANK HOLD 2.29 2.18 (4.80) 3,545.16 (10.7) (1.3) 8.8 8.9 2.6 3.3 6.4 6.1 AMMB HOLD 3.00 3.00 - 9,028.59 (20.3) 1.8 8.0 7.8 3.6 4.1 6.0 5.9 CIMB SELL 3.10 2.70 (12.90) 30,761.19 (61.9) 79.8 15.7 8.8 1.9 3.4 3.5 6.0 HONG LEONG BANK HOLD 14.74 15.30 3.80 31,952.16 1.5 4.7 11.8 11.2 2.3 2.5 9.1 8.9 MAYBANK HOLD 7.18 8.20 14.21 80,712.98 (41.0) 26.6 16.6 13.1 4.2 6.0 5.9 7.3 PUBLIC BANK HOLD 15.22 17.80 16.95 59,086.15 (20.5) 1.9 13.5 13.2 2.2 3.8 9.4 9.2 RHB BANK HOLD 4.35 5.00 14.94 17,443.70 (21.1) 8.6 8.9 8.2 3.4 3.7 7.3 7.6 Building Materials 25,382 (14.6) 142.8 87.7 36.1 0.3 0.6 4.2 9.2 MALAYAN CEMENT HOLD 1.88 1.91 1.60 1,597.43 (38.1) (98.7) (16.0) (1,260.5) - - (5.3) (0.1) PRESS METAL BUY 5.89 5.92 0.51 23,784.46 (22.2) 80.9 61.2 33.8 0.7 1.2 8.1 13.0 Construction & Infrastructure 22,765 (27.4) 9.5 21.4 19.4 3.9 4.1 2.4 3.7 AME ELITE BUY 2.09 2.00 (4.31) 892.67 13.8 6.5 16.4 15.4 1.4 1.4 8.2 8.2 GABUNGAN AQRS HOLD 0.63 0.77 23.20 308.39 (66.7) 139.1 27.3 11.4 6.4 6.4 2.1 5.1 GAMUDA BUY 3.69 4.00 8.40 9,274.92 (16.4) 5.5 17.3 16.4 3.3 3.3 6.2 6.3 HSS ENGINEERING BUY 0.45 0.82 84.27 220.66 702.1 53.8 21.6 14.0 - - 4.6 6.6 IJM CORP HOLD 1.45 1.33 (8.28) 5,250.86 (51.9) (11.3) 25.2 28.4 2.1 2.1 1.8 1.6 MRCB SELL 0.43 0.43 1.18 1,875.12 (159.6) (5.0) 91.7 96.6 4.1 4.1 0.5 0.4 PINTARAS HOLD 2.45 2.33 (4.90) 406.37 11.0 17.2 9.5 8.1 5.7 7.8 12.9 14.3 SUNWAY CONSTRUCTION BUY 1.82 2.16 18.68 2,346.63 (45.2) 73.9 32.2 18.5 3.3 3.8 11.9 19.5 WCT HOLD 0.40 0.41 3.80 556.30 (69.8) 97.1 15.8 8.0 4.3 4.3 0.9 2.1 TALIWORKS BUY 0.81 0.96 18.52 1,632.81 50.4 (26.3) 21.9 29.7 8.1 8.1 7.7 6.2 Source: Bloomberg, companies, Affin Hwang forecasts; note closing prices of 6 November 2020 Affin Hwang Investment Bank Bhd (14389-U) Page 27 of 31 APPENDIX 2: Ratings, price target and earnings estimates (cont’d) Core EPS Core EPS Core PE Core PE Rec Price Price Upside Market Grow th (%) Grow th (%) (x) (x) Yield (%) Yield (%) ROE (%) ROE (%) Company name Current Target /Dow nside Cap 2020E 2021E 2020E 2021E 2020 2021 2020E 2021E (RM) (RM) (%) (RMm) Consumer 107,686 (10.7) 13.7 33.8 29.8 3.0 3.7 9.9 10.8 AEON CO BUY 0.70 1.00 42.86 982.80 (53.6) 77.4 19.3 10.9 2.6 4.6 3.0 5.1 AJINOMOTO BUY 14.82 18.60 25.51 901.03 3.2 2.9 14.7 14.3 3.4 3.5 11.8 11.4 BAT SELL 10.22 9.20 (9.98) 2,918.12 (30.9) (0.3) 11.7 11.7 7.7 7.7 60.4 56.8 BONIA HOLD 0.54 0.56 4.67 102.01 (6.6) 8.2 7.2 6.7 3.0 3.3 4.0 4.2 CARLSBERG SELL 19.88 19.40 (2.41) 6,078.27 (30.7) 20.2 30.1 25.1 3.2 4.0 121.4 137.6 HEINEKEN SELL 19.00 19.00 - 5,739.86 (37.3) 25.8 29.2 23.3 3.4 4.3 49.8 62.6 HAI-O HOLD 2.02 2.02 - 585.50 (12.3) 7.8 17.8 16.5 4.7 4.8 10.9 11.5 MR D.I.Y SELL 2.04 1.21 (40.69) 12,804.26 (16.6) 36.9 48.4 35.3 0.7 1.1 33.7 36.1 MSM HOLD 0.51 0.57 11.76 358.52 (63.3) (72.8) (7.6) (27.8) - (1.8) (3.0) (0.8) NESTLE HOLD 140.10 134.00 (4.35) 32,853.45 (12.6) 4.9 55.4 52.8 1.8 1.9 98.6 98.7 PERAK TRANSIT BUY 0.26 0.31 19.23 495.38 (16.4) 26.2 11.1 8.8 3.5 4.6 9.4 11.1 POH HUAT BUY 1.89 1.96 3.70 500.80 (7.5) 39.4 9.8 7.0 3.4 4.8 11.4 14.3 PPB HOLD 19.10 18.90 (1.05) 27,171.66 4.1 6.7 22.5 21.1 1.6 1.6 5.4 5.6 QL RESOURCES BUY 6.52 7.11 9.05 15,867.45 8.8 12.2 62.4 55.6 0.7 0.7 11.9 12.3 SCICOM HOLD 0.92 0.97 5.43 327.02 (10.9) (4.3) 17.1 17.9 4.9 5.0 18.4 17.3 EMS 7,916 15.2 44.5 25.2 17.4 0.9 1.4 11.6 15.4 ATA IMS BUY 2.35 2.45 4.26 2,826.73 25.1 37.1 24.9 18.2 - - 15.6 18.8 VS INDUSTRY BUY 2.44 2.70 10.66 4,588.43 10.9 55.7 26.8 17.2 1.4 1.9 9.6 13.7 MTAG HOLD 0.74 0.75 2.04 500.99 7.4 12.4 15.4 13.7 1.5 2.3 17.3 18.1 Gaming 26,317 (145.7) (210.1) (15.2) 13.8 5.5 6.6 (3.4) 3.7 BTOTO SELL 1.94 1.79 (7.73) 2,606.39 (11.1) 28.0 14.9 11.7 6.7 8.1 23.4 29.5 GENTING HOLD 3.06 3.01 (1.63) 11,782.76 (133.2) (265.2) (15.3) 9.3 4.2 4.9 (2.2) 3.6 GENTING MALAYSIA SELL 2.11 1.80 (14.69) 11,928.33 (187.9) (137.0) (10.4) 28.1 5.7 6.6 (6.9) 2.6 Healthcare & Pharma. 51,573 (49.7) 61.8 85.5 52.9 1.0 1.2 2.4 3.8 APEX HEALTHCARE SELL 3.40 2.75 (19.12) 1,615.07 2.8 5.0 28.1 26.8 1.1 1.2 12.3 11.9 IHH HOLD 5.27 5.50 4.36 46,255.95 (55.4) 84.4 111.6 60.5 0.2 0.4 1.8 3.3 KPJ HOLD 0.87 0.92 6.36 3,701.86 (38.5) 15.2 28.0 24.3 1.6 1.9 6.7 7.4 Insurance 11,099 (3.9) 1.1 9.8 9.7 4.5 4.9 16.3 16.0 ALLIANZ MALAYSIA BUY 13.16 16.40 24.62 2,327.86 (3.5) (3.5) 9.6 9.9 4.2 4.6 13.3 12.8 LPI CAPITAL BUY 12.70 15.90 25.20 5,059.46 1.0 2.1 15.5 15.2 4.7 5.2 16.2 16.2 SYARIKAT TAKAFUL HOLD 4.47 4.95 10.74 3,712.04 (8.7) 6.7 11.1 10.4 4.0 4.3 24.1 23.0 Source: Bloomberg, companies, Affin Hwang forecasts; note closing prices of 6 November 2020 Affin Hwang Investment Bank Bhd (14389-U) Page 28 of 31 APPENDIX 2: Ratings, price target and earnings estimates (cont’d) Core EPS Core EPS Core PE Core PE Rec Price Price Upside Market Grow th (%) Grow th (%) (x) (x) Yield (%) Yield (%) ROE (%) ROE (%) Company name Current Target /Dow nside Cap 2020E 2021E 2020E 2021E 2020 2021 2020E 2021E (RM) (RM) (%) (RMm) Media 4,534 (36.7) 21.3 10.4 8.6 2.5 2.6 12.6 15.8 ASTRO HOLD 0.75 0.88 18.12 3,884.81 (23.7) 2.2 7.2 7.0 8.3 8.5 48.0 41.1 MCIL SELL 0.15 0.13 (10.34) 244.65 (154.0) (89.3) (12.6) (117.6) 1.9 1.8 (2.9) (0.3) MEDIA PRIMA SELL 0.17 0.13 (21.21) 183.02 30.0 (64.2) (4.2) (11.6) - - (7.9) (2.9) STAR SELL 0.31 0.28 (8.20) 221.05 (665.4) (88.3) (5.6) (47.4) - - (5.2) (0.6) MREIT 32,786 (20.4) 15.6 22.5 19.2 4.4 4.5 4.4 5.3 AXIS REIT HOLD 2.07 1.97 (4.83) 2,985.63 (6.4) 12.4 24.2 21.5 4.1 4.7 5.9 6.6 IGB REIT HOLD 1.63 1.72 5.52 5,803.71 (33.3) 31.2 27.4 20.9 3.8 4.9 5.6 7.3 KLCC HOLD 7.62 7.91 3.81 13,756.64 (9.6) 8.5 20.8 19.1 4.6 5.0 5.0 5.4 SUNWAY REIT HOLD 1.36 1.65 21.32 4,657.74 (7.0) 7.5 16.9 15.7 5.5 5.9 4.8 5.2 PAVILION REIT HOLD 1.43 1.36 (4.90) 4,354.79 (59.8) 71.9 43.6 25.4 2.5 4.1 2.6 4.4 YTL REIT SELL 0.72 0.68 (5.56) 1,227.16 (14.0) (0.4) 10.6 10.6 5.8 2.2 4.5 4.5 Oil & Gas 165,310 (9.7) 15.8 22.6 19.7 2.0 2.1 6.3 7.2 BUMI ARMADA BUY 0.24 0.39 62.50 1,412.61 89.2 1.9 3.4 3.3 - - 12.4 11.2 DIALOG BUY 3.80 4.30 13.16 21,429.39 8.2 7.3 35.3 32.9 1.0 1.2 13.9 13.7 KELINGTON HOLD 1.27 1.22 (3.94) 408.18 (74.2) 169.1 58.8 21.9 0.6 1.6 4.2 10.4 GAS MALAYSIA HOLD 2.71 2.73 0.74 3,479.64 3.9 7.1 19.9 18.6 4.7 5.1 16.7 17.7 MISC HOLD 6.87 6.80 (1.02) 30,665.93 24.7 (0.3) 15.3 15.3 4.4 4.4 5.8 5.8 MMHE SELL 0.31 0.29 (6.45) 496.00 308.0 (121.9) (5.3) 24.4 - - (4.1) 0.9 PCHEM SELL 6.20 4.70 (24.19) 49,600.00 (42.3) 45.0 30.6 21.1 1.7 2.4 5.3 7.4 PETRONAS DAGANGAN SELL 18.22 18.05 (0.93) 18,100.73 (70.3) 124.7 73.5 32.7 1.1 2.4 4.0 8.9 PETRONAS GAS HOLD 16.18 17.30 6.92 32,015.88 (1.7) (2.2) 16.8 17.2 7.0 4.7 13.9 14.0 SAPURA ENERGY SELL 0.11 0.10 (4.76) 1,677.80 (84.4) 90.8 (15.0) (7.9) - - (0.7) (2.0) SERBA DINAMIK BUY 1.52 2.15 41.45 5,120.57 12.2 8.9 9.3 8.5 3.2 3.5 18.1 17.3 VELESTO ENERGY SELL 0.11 0.13 18.18 903.72 (174.8) 59.1 (0.4) (0.9) - - (0.9) (0.4) Plantation 105,748 38.2 12.4 39.8 35.4 1.7 2.1 6.6 6.1 FGV SELL 1.15 0.99 (13.91) 4,195.37 28.3 111.7 68.8 32.5 2.6 3.5 1.5 3.1 GENTING PLANT BUY 9.90 10.82 9.29 8,882.26 51.8 22.0 37.4 30.7 1.5 1.5 4.3 5.1 HAP SENG PLANT BUY 1.73 2.04 17.92 1,383.46 121.0 13.3 29.8 26.3 1.4 1.4 2.8 3.1 IJM PLANT BUY 1.83 2.37 29.51 1,611.46 79.5 38.7 31.3 22.6 1.1 2.3 4.2 5.6 IOI CORP HOLD 4.45 4.74 6.52 27,884.42 9.5 9.2 35.6 32.6 1.8 1.8 8.4 9.0 JAYA TIASA BUY 0.77 1.13 47.71 740.51 (128.7) 32.5 22.0 16.6 0.8 1.8 3.0 3.9 KUALA LUMPUR KEPONG HOLD 22.76 24.64 8.26 24,546.18 19.3 4.9 29.1 27.8 2.2 2.2 7.9 8.0 SIME DARBY PLANTATION HOLD 5.12 4.92 (3.91) 35,249.02 67.1 9.9 66.1 60.1 1.9 1.2 3.9 4.2 TA ANN BUY 2.85 3.24 13.68 1,255.32 50.2 13.1 14.0 12.3 1.8 3.5 5.8 6.2 Source: Bloomberg, companies, Affin Hwang forecasts; note closing prices of 6 November 2020 Affin Hwang Investment Bank Bhd (14389-U) Page 29 of 31 APPENDIX 2: Ratings, price target and earnings estimates (cont’d) Core EPS Core EPS Core PE Core PE Rec Price Price Upside Market Grow th (%) Grow th (%) (x) (x) Yield (%) Yield (%) ROE (%) ROE (%) Company name Current Target /Dow nside Cap 2020E 2021E 2020E 2021E 2020 2021 2020E 2021E (RM) (RM) (%) (RMm) Plastic & Packaging 6,454 19.0 6.7 14.6 13.6 3.9 4.1 13.9 14.4 SLP RESOURCES HOLD 0.93 1.05 13.51 293.19 (14.0) 18.7 15.6 13.2 5.9 5.9 9.6 11.1 SCIENTEX BUY 11.92 13.20 10.74 6,161.03 21.1 6.2 14.4 13.5 1.9 2.2 15.3 14.6 Property 21,524 (32.0) 12.6 12.7 11.3 5.9 6.1 2.3 3.2 E&O BUY 0.36 0.54 50.00 515.29 (55.9) 0.1 15.4 15.3 8.3 8.3 1.0 1.0 IOI PROPERTIES BUY 0.88 1.40 60.00 4,817.88 (2.9) 1.8 8.1 8.0 3.4 3.4 3.1 3.1 SIME DARBY PROPERTY HOLD 0.58 0.62 7.83 3,910.48 (78.9) 86.5 37.0 19.8 5.2 5.2 1.1 2.1 SP SETIA HOLD 0.72 0.86 20.28 2,900.56 (55.0) 42.0 23.6 16.6 1.4 3.5 0.9 1.2 SUNWAY HOLD 1.28 1.35 5.47 6,257.83 (40.0) 39.1 15.0 10.8 7.0 7.8 5.1 7.1 UOA DEVELOPMENT BUY 1.47 2.34 59.18 3,121.94 19.8 (23.5) 6.6 8.6 10.2 8.2 8.4 6.3 Rubber Products 176,703 333.4 39.4 21.9 15.7 1.9 2.6 56.8 57.2 HARTALEGA BUY 18.20 27.10 48.90 62,382.45 313.7 33.1 34.3 25.8 1.8 2.3 56.4 57.7 KAREX SELL 0.82 0.50 (38.65) 816.94 334.5 154.5 136.2 53.5 0.6 0.6 1.2 3.1 KOSSAN BUY 7.49 11.40 52.20 19,158.46 238.7 39.9 25.3 18.1 1.6 2.5 40.4 43.2 SUPERMAX BUY 9.78 16.40 67.69 25,122.19 446.7 20.6 15.1 12.6 2.8 3.7 73.4 59.8 TOP GLOVE BUY 8.50 15.45 81.76 69,222.50 325.8 51.1 18.6 12.3 2.7 4.1 59.8 62.7 Technology 21,511 23.2 29.2 34.5 26.7 2.1 2.4 12.5 14.8 GLOBETRONICS BUY 2.97 3.69 24.24 1,988.25 26.3 22.1 35.4 29.0 2.4 2.9 18.3 21.6 INARI BUY 2.68 3.07 14.55 8,789.89 17.1 52.4 46.3 30.4 1.8 2.3 15.1 21.5 KESM HOLD 9.25 8.60 (7.03) 397.88 (8.3) 214.7 80.0 25.4 0.9 1.3 1.4 4.2 MPI HOLD 23.78 15.20 (36.08) 4,729.76 10.2 6.7 29.2 27.4 1.1 1.1 11.3 10.7 UCHI TECH HOLD 2.62 2.75 4.96 1,177.31 (15.2) 5.4 18.0 17.1 5.3 5.7 43.4 49.7 UNISEM HOLD 6.09 4.25 (30.21) 4,427.95 118.4 33.3 32.4 24.3 1.1 1.1 9.6 11.7 Telecoms 116,580 (19.1) 6.5 29.4 27.7 2.9 3.1 12.5 13.1 AXIATA HOLD 3.20 3.15 (1.56) 29,342.43 (52.6) 71.5 64.5 37.6 1.6 2.3 2.8 4.8 DIGI HOLD 4.00 4.15 3.75 31,100.00 (12.2) (0.5) 24.7 24.8 4.0 4.0 190.6 189.7 MAXIS HOLD 5.15 5.35 3.88 40,288.64 (7.6) 2.3 29.1 28.4 3.4 3.5 19.6 20.1 TELEKOM BUY 4.20 5.00 19.05 15,849.30 (14.0) (10.9) 18.3 20.6 2.7 2.4 11.2 9.5 Transports & Logistics 23,020 (340.8) (106.8) (9.1) 133.1 0.8 1.1 (19.8) 1.3 AIRASIA SELL 0.56 0.46 (17.12) 1,854.80 1,689.7 (78.5) (0.7) (3.2) - - (174.4) (60.2) MAHB SELL 4.52 4.20 (7.08) 7,499.55 (179.5) (128.0) (16.7) 59.6 - 0.8 (5.1) 1.4 TIONG NAM SELL 0.52 0.32 (37.86) 230.21 (107.4) 1,307.8 745.0 52.9 - - 0.0 0.6 WESTPORTS HOLD 3.94 3.95 0.25 13,435.40 (6.4) 3.3 22.3 21.6 3.4 3.5 22.3 21.7 Utilities 79,774 3.7 15.7 14.3 12.3 4.9 4.7 5.7 7.1 JAKS RESOURCES BUY 0.56 0.61 9.91 374.66 (72.7) 190.1 10.1 3.5 - - 3.1 8.3 MALAKOFF HOLD 0.91 1.00 10.50 4,422.70 73.0 10.8 12.7 11.5 7.8 8.5 6.5 7.2 TENAGA BUY 10.30 12.80 24.27 58,757.94 4.6 19.5 12.8 10.7 6.8 6.8 7.8 9.1 YTL CORP SELL 0.78 0.59 (24.36) 8,583.78 (179.7) (1,067.1) (405.0) 41.9 2.6 5.1 (0.2) 1.7 YTL POWER HOLD 0.65 0.71 10.08 5,259.98 (26.7) 80.0 28.7 15.9 7.2 7.8 1.5 2.6 Market Total 1,271,952 (21.8) 33.0 23.6 17.8 3.0 3.3 6.1 8.0 Source: Bloomberg, companies, Affin Hwang forecasts; note closing prices of 6 November 2020 Affin Hwang Investment Bank Bhd (14389-U) Page 30 of 31 Important Disclosures and Disclaimer Equity Rating Structure and Definitions BUY Total return is expected to exceed +10% over a 12-month period HOLD Total return is expected to be between -5% and +10% over a 12-month period SELL Total return is expected to be below -5% over a 12-month period NOT RATED Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation The total expected return is defined as the percentage upside/downside to our target price plus the net dividend yield over the next 12 months. OVERWEIGHT Industry, as defined by the analyst’s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months NEUTRAL Industry, as defined by the analyst’s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months UNDERWEIGHT Industry, as defined by the analyst’s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months This report is intended for information purposes only and has been prepared by Affin Hwang Investment Bank Berhad (14389-U) (“the Company”) based on sources believed to be reliable and is not to be taken in substitution for the exercise of your judgment. You should obtain independent financial, legal, tax or such other professional advice, when making your independent appraisal, assessment, review and evaluation of the company/entity covered in this report, and the extent of the risk involved in doing so, before investing or participating in any of the securities or investment strategies or transactions discussed in this report. However, such sources have not been independently verified by the Company, and as such the Company does not give any guarantee, representation or warranty (expressed or implied) as to the adequacy, accuracy, reliability or completeness of the information and/or opinion provided or rendered in this report. 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