SINGAPORE BUDGET 2019

Defence, healthcare, bank stocks expected to gain from Singapore Budget 2019

As a key defence innovator and equipment supplier, ST Engineering seen as major beneficiary

Singapore

DEFENCE, healthcare and grocery stocks are the possible winners from the latest Singapore Budget announced on Monday, according to a number of research analysts.

The emphasis on defence and building a smart nation in Singapore Finance Minister Heng Swee Keat's budget speech sent defence contractor ST Engineering to the top of the winners' list for many analysts, with DBS, RHB and CGS-CIMB highlighting the stock.

"Singapore plans to continue to innovate and build new capacities to meet its security needs," wrote RHB, which has a "buy" call on ST Engineering. In addition to the existing five pillars of military, civil, economic, social and psychological defence, Singapore has recognised the importance of guarding against cyber threats, as a sixth pillar of digital defence. "We view the Government's increased focus on defence spending as positive for ST Engineering, which remains a key innovator and supplier of defence equipment to the country," RHB said. ST Engineering shares dipped one cent to close at S$3.73 on Tuesday.

Changes to the foreign-worker policy are expected to affect several industries. In its report, CGS-CIMB said the impact of tighter restrictions is "slightly negative", but will be cushioned by measures meant to help cushion the blow, such as an extension of the automation support grant. RHB said the reduction in the proportion of foreigners in a company's workforce will be "near-term negative" for food and beverage (F&B) players, and preferred grocers. DBS reckoned that the quota reduction is marginal for bigger F&B companies like Jumbo, Koufu, BreadTalk, Sheng Siong and Dairy Farm because they have large employee counts, and that longer-term productivity could improve with government support.

On Tuesday, Jumbo, BreadTalk, Sheng Siong and Dairy Farm shares closed unchanged at S$0.41, S$0.88, S$1.08 and US$8.97 respectively. Koufu was up half a cent at S$0.635.

The offshore marine sector could however benefit from another year's deferment of foreign worker levy hikes.

"We estimate that the move could save Singapore rigbuilders S$3 million to S$4 million each in 2019 and 2020," DBS wrote. "While this may not be a very significant amount, every bit helps given the competitive operating environment and plunge in profitability."

RHB said banks would also benefit from a continued push for digitalisation among small and medium enterprises (SMEs), which could lead to more SME business banking going digital. This is particularly in the areas of digital payments and cash management, which should benefit banks in respect of lower cost income ratio and ultimately contribute to higher return on equity. RHB has "buy" calls on DBS Group Holdings and United Overseas Bank (UOB).

DBS fell 10 Singapore cents to S$25.10 yesterday while UOB fell 7 Singapore cents to S$25.80.

Taxi company ComfortDelGro Corp is expected to see only marginal impact from a permanent reduction on the Special Tax on diesel taxis, which was announced to offset an increase in excise duty on diesel. ComfortDelGro will probably pass on the savings from the reduction in the Special Tax to drivers, said DBS and CGS-CIMB.

"We could see about S$7 million in cost savings for ComfortDelGro but this is likely to be passed through to drivers in rental rebates (up to S$1.70 per day)," CGS-CIMB said. "The positive is the accelerated pace of switching from diesel to hybrid taxi models."

ComfortDelGro shares closed at S$2.43 on Tuesday, up 2 Singapore cents.

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