SINGAPORE BUDGET 2013

SINGAPORE BUDGET 2013: Overall impact Nomura maintains a cautious view on the Singapore mkt, believes ongoing economic restructuring should continue to undermine the outlook for corporate EPS growth, in view of higher worker levies and constraints on labour growth. Continues to like stocks with stable dividends that also derive more of their earnings from overseas, eg. SATS, Comfort, SingTel, Keppel Land, DBS, Jardine Matheson, and Ascendas Hospitality Trust. O&M, Construction, Consumer Services (negative) The govt continued to reduce foreign worker quotas. Foreign work levies for low-skill Construction workers will be raise, while Service Economy Dependency and S Pass ratios have been tightened an additional 5%. Companies have until Jul 2015 to comply. Notably, the Marine sector (which previously escaped cuts) will see a reduction in its dependency ratio from 1:5 to 1:3.5. To help manage the transition, the govt introduced a 3-yr transition support package (co-fund 40% of wage increases for Singaporean employees earning up to $4k over the next 3 years, enhanced Productivity Incentive Bonuses, and corporate tax rebates of 30% up to $30k per year for 2013-15). Such moves could dampen margins for the O&M, construction, consumer services sectors, which may see rising wage pressures. With its new yard opening in Tuas, Deutsche, Credit Suisse believe that SMM faces greater margin risk vs Keppel Corp which is likely to be buffered by growing contributions from its overseas yards. For construction firms who ventured early into property devt such as Lian Beng and KSH may be less affected than pure construction companies such as Logistics Holdings. Nevertheless, expect sector margins to be crimped. Maybank KE highlights FJ Benjamin, already feeling the pinch from difficulties in hiring local workers to work in its stores, will be facing further cost pressures. Banks (negative) The higher taxes on cars and higher end properties may impact loans for these discretionary items. HL Finance has sizeable % of the car loans market. UOB, DBS, OCBC all have approx 20-30% of their loan book in the property segment. Property & REITs (mixed) UOBK notes the increased spending driven by higher disposable income levels will benefit the retail REITs, especially those exposed to the suburban segments, ie. FCT, CMT. Credit Suisse likes MCT for this angle. We think that Industrial Reits may be more adversely affected, giving higher costs faced by (industrial) SMEs. Smaller Reits like Sabana, Cache, AIMS AMP Capital Industrial Trust, Cambridge tend to have higher SME tenant contribution, vs the larger industrial Reits like A-Reit, MLT and MINT. The property tax increase was a surprise, with the increase having greater impact on higher grade properties. This could negatively affect high end players like Wing Tai, Ho Bee, Wheelock. Consumer discretionary (positive) UOBK believes companies such as Super, Courts, QAF, Challenger and Sheng Siong are key beneficiaries from higher disposable income arising from an expectation of wage increase, lower personal income tax, lower foreign maid levy, GST offsets and a reduction in property tax. Credit Suisse also notes the greater focus on social spending will support the consumption theme. For each of the last 3 yrs, stocks such as Super, Osim, Raffles Medical have outperformed the market in the 3 mths post Budget. Transport (positive) UOBK notes Comfort could benefit from lower COEs due to a 50% cap on LTVs of motor vehicles and one-off 30% rebate in road tax for commercial vehicles. Nomura thinks Comfort is a key beneficiary, given its leadership in the tax segment, which is expected to see increased demand from reduced affordability of car ownership. The co should also benefit meaningfully from the tax rebates, given it is the largest taxi and bus operator in Spore.