How to trade Singapore’s Budget 2018

The deferment of the GST hike bodes well for the consumer sector. Find out how the rest of the budget announcement will impact stocks.
Group Research20 Feb 2018
  • Bumper budget surplus of S$9.6bn for 2017
  • Higher buyers’ stamp duty on residential properties could slow en-bloc deals
  • GST hike deferred till 2021 or beyond, positive for consumer sector; Buy call on Genting Singapore
  • Reiterate positive stance on STI; favour banks, oil & gas, consumer plays
Photo credit: AFP Photo

Singapore logged a bumper budget surplus of S$9.6bn (2.1% of GDP) for FY2017, the highest in 20 years. The increase was mainly due to exceptional statutory board contribution (mainly from the Monetary Authority of Singapore) and a surge in stamp duties from a buoyant property market. With this, the government will dish out SG bonus of between S$100-300 each, costing S$700mn.

In addition, the much-anticipated increase in GST from 7% to 9% has been deferred to 2021 and beyond. This should be positive for consumer spending and sentiment. Genting Singapore, which was sold down last week on GST concerns, should see a good rebound. Budget 2018 will be expansionary, with the establishment of a S$5bn rail infrastructure fund. The key beneficiary of rail infrastructure projects is ST Engineering, which is a likely contender for the Singapore-Kuala Lumpur high-speed rail project.

The government also announced an increase in buyers’ stamp duties from 3% to 4% for residential property purchases valued in excess of S$1mn. The impact is likely to be small on residential home purchases; we estimate for a S$2.0mn property, the effective tax rate is expected to increase by only 0.5 basis points from 2.7% to 3.2% and is unlikely to affect the affordability of home buyers. However, this could slow en-bloc deals of developers looking to top up their landbank.

In addition, the extension of the wage credit scheme will benefit companies with a large workforce within the lower income group – consumer services, oil & gas, and construction sectors. This could have a positive impact of 1-4% on our forecasts for these consumer companies - HRnet, Sheng Siong, and Jumbo Group.

In light of the above, we reiterate our positive stance on the market – the Straits Times Index has been resilient and is base building for the next uptrend. We continue to like banks, while expecting rotational interest in oil & gas, small and mid-caps, as well as consumer sector to be sustained. We like UOB, OCBC, Keppel Corp, SembCorp Marine, Genting Singapore, HRNet, SingPost, and Breadtalk.

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