AllianceDBS senior analyst Cheah King Yoong says the buying interest in consumer stocks will mainly stemmed from expectation of a rebound in consumer spending going forward. NST picture by Hazreen Mohamad.

KUALA LUMPUR: Feel good sentiments and the implementation of economic stimulus by the newly elected Pakatan Harapan’s (PH) government will attract investors to bank in on consumer stocks in Bursa Malaysia.

AllianceDBS senior analyst Cheah King Yoong said the buying interest in consumer stocks will mainly stemmed from expectation of a rebound in consumer spending going forward.

“Beside the goods and services tax (GST) abolishment, other goodies contained in PH government’s manifesto will help to boost consumer sentiment,” he told NSTP Business today.

Asked on how the GST abolition would impact consumer products/stock, he said most consumer stocks will benefit from topline growth due to rebound in consumer spending.

The research firm has also upgraded British American Tobacco Malaysia Bhd (BAT) to “Buy” call with target price of RM39 and Padini Holdings Bhd to “Hold” with target price of RM5.05.

“BAT serves as the top pick for exposure to the consumer recovery theme. Other stocks that are not under our coverage but likely to benefit from this consumer recovery theme include Nestle (M) Bhd, Aeon Co (M) Bhd, 7-Eleven Malaysia Holdings Bhd, Mynews Holdings Bhd, and Power Root Bhd,” he added.

According to Bloomberg Intelligence (BI), Bursa Malaysia Consumer Index for one-day period gained (0.67 per cent) at market closing today, following the new government’s move to set GST at zero per cent from June 1.

The index outperformed FMBKLCI (Bursa Malaysia) during the one-day period, registering 0.21 per cent decline from Wednesday’s closing.

BI data also revealed the best-performing one-day total return stock were CCK Consolidated Holdings Bhd (13.55 per cent), Bonia Corp Bhd (12.09 per cent) and Sinotop Holding Bhd (7.78 per cent).

Moody’s Investors Service has viewed that the GST’s abolition, if implemented without adjusting measures, as credit negative.

“While revenue losses this year will be offset to some degree by higher oil prices, this development is unlikely to be a structural -- or act as -- a permanent substitute for GST itself.

“The extent to which offsetting measures, if any, will help recover the revenue loss from GST will allow us to determine the exact impact on Malaysia’s fiscal position going forward,” said Anushka Shah, vice president - senior analyst, sovereign risk group, Moody’s Investors Service.

However, she said if GST is eliminated, it would increase the government’s reliance on oil-related revenues and would also narrow the tax base.

The existing GST of six per cent will be abolished while the previous Sales and Services Tax (SST) will be reinstated.

PH expects the abolishment of GST will immediately ease the burden of the people.

Cheah said the overall impact of fiscal deficit reforms with the implementation of SST to replace GST will likely result in a net revenue deficit of RM11.9 billion.

Additionally, the introduction of targeted fuel subsidies and the ‘Skim Peduli Sihat’ will cost the governtment additional expenditure of RM3 billion and RM6 billion, respectively.

“The estimated higher oil related revenue of RM6.4 billion will partially offset the deficit to a net loss of RM14.5 billion.

“However, this has not taken into consideration other counter measures which may be implemented by the new government to reduce expenditure,” he said.

AllianceDBS said private consumption growth fell to 3.9 per cent Year-on-Year (YoY) in the second-quarter (Q2), after the previous Barisan Nasional (BN) ruling-government introduced the GST in 2015.

Malaysian Institute of Economic Research’s (MIER) consumer sentiment index also dropped to its lowest of 63.8 in the fourth-quarter (Q4) of 2015.

“This proved that the introduction of GST had directly impacted consumer’s sentiment negatively. As such, the abolishment of GST is expected to boost consumer’s sentiment and consumption.”

In the 2017/2018 Economic Report, the previous government guided that GST revenue will likely amount to RM43.8 billion in 2018, while the SST revenue in 2014 was roughly RM18.0 billion.

The report also highlighted that the current government will forego around RM21.9 billion of revenue in the second-half (2H) of 2018, in reference to the GST abolition, effective on June 1. 

“We estimate SST will likely amount to RM20 billion in 2018, given the economic growth over past few years. Based on this assumption, SST revenue is estimated at RM10 billion in 2H18.”




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