Broker: UOB Kay Hian
Date of Report: October 7, 2024
Budget 2025 Preview: Building Sustainable Growth in Malaysia
The upcoming Budget 2025, scheduled to be tabled on October 18, 2024, is anticipated to be market-neutral but sets a strong foundation for future economic growth in Malaysia. It aims to support the ringgit’s upward momentum while emphasizing fiscal prudence and the well-being of the “rakyat” (the people). Despite being expansionary, the budget is expected to be pro-growth and pro-foreign direct investment (FDI), with key beneficiary sectors identified as property and construction.
Key Elements of Budget 2025
As the final budget under the 12th Malaysia Plan, Budget 2025 will likely focus on expansionary fiscal measures, prudent management, and initiatives to uplift the well-being of the people. Expected measures include subsidy reductions, various tax reforms, and an increase in the minimum wage. These align with UOB’s 2025 macroeconomic assumptions, which predict a lower GDP growth, a narrower fiscal deficit, and a stronger Malaysian ringgit against the U.S. dollar.
Impact on the Property Sector
The property sector is expected to be a significant beneficiary of Budget 2025, with potential positive measures including the extension of the Home Ownership Program and the possible implementation of the Madani Deposit Scheme, alongside a Developer Interest Bearing Scheme (DIBS)-like initiative. Additionally, the budget may include more incentives for high-growth, green-related, micro, small, and medium enterprises (MSME), and the tourism sector.
Infrastructure and Mega Projects
The budget is also set to acknowledge several mega infrastructure projects such as the Mass Rapid Transit Line 3 (MRT3), High-Speed Rail (HSR), Penang Light Rail Transit (LRT), and the Pan Borneo Highway Phase 1B. However, not all of these projects are expected to roll out in 2025. Projects more likely to commence in 2025 include the Penang LRT, the Pan Borneo Highway Phase 1B, and the Johor Autonomous Rail Transit (ART).
Positive Outlook for Key Stocks
UOB Kay Hian maintains an end-2024 FBMKLCI (FTSE Bursa Malaysia KLCI) target of 1,735, based on a 15.6x 2024F price-to-earnings ratio (-0.50 standard deviation to the historical mean). Despite current market uncertainties, Malaysian equities are expected to exhibit a strong year-end uptrend. Catalysts for this growth include positive news related to the Iskandar 2.0 development, data center land sales, government IT project awards, and mergers and acquisitions.
Stock Analysis
Lagenda Properties: Rising Above Crisis
- Recommendation: Buy
- Target Price: RM2.32
- Current Share Price: RM1.37
- Upside Potential: 69.3%
Lagenda Properties is poised for sustained growth, supported by the government’s focus on affordable housing. The company is expected to benefit from the proposed Madani Deposit Scheme and the planned civil servant salary hikes, considering that civil servants make up 60% of its customer base.
Recently, Lagenda strengthened its management team by appointing Koong Wai Seng as Executive Director and Loh Lai Pui as Chief Financial Officer, both of whom bring extensive industry experience. The company has recorded a strong quarterly sales performance, achieving RM297 million in 2Q24, driven primarily by its Lagenda Ardea project in Selangor, which saw a 99% take-up rate. Over 50% of its 1H24 sales came from projects outside of Perak, further diversifying its revenue stream.
Lagenda’s upcoming projects, including a new township in Kulai, Johor, and Lagenda Ardea Phase 2 in Selangor, are expected to contribute significantly to future revenue growth. With a conservative balance sheet and a net gearing of 0.43x, Lagenda is well-positioned to capitalize on new opportunities while maintaining a prudent debt management strategy.
Gamuda: Positioned for Infrastructure Expansion
- Recommendation: Buy
- Target Price: RM9.16
- Current Share Price: RM7.91
Gamuda Berhad is expected to be one of the key beneficiaries of the infrastructure projects outlined in Budget 2025. The company’s involvement in various mega projects, including MRT3, HSR, and the Pan Borneo Highway, positions it favorably to capitalize on Malaysia’s expansionary fiscal plans.
As one of UOB Kay Hian’s top picks for 2025, Gamuda’s end-of-year performance is forecasted to improve, buoyed by the government’s strategic allocation toward states like Johor, Penang, Sabah, and Sarawak. These states are pivotal in attracting foreign direct investments, further driving Malaysia’s economic growth.
My E.G. Services: Benefiting from Digitalization and Increased Cash Aid
- Recommendation: Buy
- Target Price: RM1.42
- Current Share Price: RM0.90
My E.G. Services (MYEG) is another notable beneficiary of Budget 2025. With the government likely to enhance its focus on digitization and efficient service delivery, MYEG is in a prime position to benefit from potential IT project awards. Furthermore, the proposed higher cash aid under the Madani plan will likely increase discretionary spending, indirectly boosting demand for digital services.
Eco World: Set to Capitalize on Iskandar 2.0
Eco World is a potential key beneficiary of Iskandar 2.0-related initiatives. Given its strong presence in Johor, the company is well-placed to capture opportunities arising from the government’s focus on development projects in this region. Furthermore, the proposed positive soundbites for the Iskandar Region in Budget 2025 may provide an additional catalyst for Eco World’s stock performance.
Inari Amertron: Riding the Technology Incentive Wave
As Budget 2025 is expected to include more incentives for the technology sector, Inari Amertron is set to benefit. The government’s focus on promoting the growth of high-value and green-related sectors aligns with Inari’s core operations. The company stands to gain from any tax incentives aimed at attracting investments into the semiconductor and electronics industry.
Fiscal Prudence and Economic Outlook
Budget 2025 is likely to emphasize fiscal discipline, with a targeted fiscal deficit of 3.8%, down from an estimated 4.3% in 2024. This reduction is expected to be achieved through subsidy rationalization measures, such as extending targeted diesel subsidies to East Malaysia and adjusting RON95 fuel prices. The implementation of new taxes, including a high-value goods tax and a global minimum tax of 15%, will also support the government’s revenue stream.
With an expected GDP growth of 4.7% in 2025 and an end-2024 FBMKLCI target of 1,735, the overall outlook for Malaysia’s economy and equity market remains positive. The market is set to benefit from increased foreign investments, higher government spending on infrastructure, and targeted policies that support key sectors such as property, construction, and technology.
