KUALA LUMPUR: The key surprises in the Budget 2019 proposals are higher gaming tax and real property gains tax (RPGT), says CIMB Equities Research.
It said on Monday the sector winners include healthcare and tobacco, while casino, aviation and property sectors are likely to see some dent to their earnings.
“The key measures from the Budget could lower our 2019 FBM KLCI earnings growth forecast by one to two percentage points to 6%-7%. Maintain KLCI target of 1,684,” it said.
CIMB Research said the measures which could impact earnings of companies under its coverage are:
(1) increase in minimum wage to RM1,100 per month starting Jan 1, 2019;
(2) increase in casino and slot machine operator duties to 35% and 30% of gross takings, starting 1 Jan 2019 and
(3) increase in RPGT for the disposal of properties or shares in property holding companies by 5% pts to 10% for companies and foreigners and 5% for Malaysian individuals.
In Budget 2019, the government raised the minimum wage to RM1,100 a month. The higher minimum wage is likely to boost consumption among the low-income groups.
However, this is offset by higher labour costs in the plantation, consumer, rubber gloves, manufacturing and technology sectors.
“We estimate that every RM100 a month increase in minimum wage could cut plantation companies’ earnings by 0.5-14% in FY19F.
“We estimate the hike in casino and slot machine operator gaming duties could cut
Genting Malaysia’s FY19/20F EPS by 24.9%-29.8% and Genting’s FY19/20F EPS by a lower 13.7%-15.7%, as Genting is a more diversified entity,” it said.
The Genting entities make up around 6.57% of KLCI weightage. CIMB Research estimates the new gaming duties could dent its corporate earnings growth for 2019 by one percentage point, from 8% to 7%.
The increase in RPGT rate for the disposal of properties or shares in property holding companies after the fifth year by five percentage points could dampen the appreciation of property prices in the high-end market and curb speculation, which is negative for some property developers.
“Overall, we view the 2019 Budget to be slightly negative for corporate earnings in the near-term due to higher gaming and RPGT taxes, though part of it has been factored in through recent market correction.
“The key winner in the Budget is the healthcare and tobacco sectors. We remain positive in the medium- to long-term on government plans to strengthen its fiscal position and implement institutional reforms,” said CIMB Research.
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