KUCHING: A 20 sen hike in the price of a kilogramme (kg) of sugar starting on January 1, 2010 provide the ball rolling for further subsidy withdrawal in the first half (1H) of 2010.Maybank Investment Bank Bhd (Maybank) in a market comment cited that more subsidy withdrawals are planned, however efforts to reduce the impact were already put in place.
It pointed out that for instance, in the case of rice, the government has introduced a voucher system for the subsidised ST15 rice, which will save RM40 million a month against the current cost of RM60 million a month to retain the price at RM1.80 per kg.
It noted that petrol subsidies will also be limited to certain car sizes, saving RM2 billion.
The research firm observed that in total, the federal government planned to save RM4 billion from reducing subsidies in 2010 from various food items, of which over RM2 billion was expected to be from petrol subsidy withdrawal.
It projected that households’ purchasing power would fall as they fork out more for these items.
Meanwhile, it noted that efforts to counter the withdrawal in subsidies in the form of reduced income taxes and some other rebates have been planned.
The research firm estimated that the 2010 Federal Government Budget contained a number of proposals which in total will provide about RM1.08 billion into the hands of consumers.
It said net household loss of purchasing power is closer to RM2.9 billion or 0.8 per cent of annual consumer spending out of RM4 billion of incremental household spending due to subsidy withdrawal.
The projection did not take into consideration of any household income growth as the result of the economy which is estimated to grow at slightly over 4 per cent in 2010.
On the other hand, other items whose prices are expected to go up from reduced subsidies are petrol, flour and rice.
Thus, Maybank believed the impact on consumption will be felt through poorer sentiment on consumption.
However, on the equity side, it preferred consumer stocks with strong franchises and relatively inelastic demand with leading market share or good reason to expand capacity.
It upgraded the rating of JT International Bhd, QL Resources Bhd, Media Prima Bhd and RCE Capital Bhd.
On the market perspective for this year, it projected that there is room for the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI 30) to rise to 1,410 points based on valuation metrics and 14.9 per cent earnings growth.
On its sector selection for the global economy recovery theme, it favoured domestic driven which include property, construction, utilities, selected banks and consumer as well as oil and gas.