Post Pilihanraya - Economic Review

You might not interest in this post. But that's okay. Just for my reference in the future.

Ini aku compile dari laporan TA Securities, Aseambankers, CIMB & AMResearch. With a bit of my 'stupid' personal blue& Bold. For full report, mail me, and i'll sent you the report.

A few notes from me... (stupid right?)
- MB in a state that have a Sultan must be a Muslim (PAS - Perak). But DAP hold the states. If MB want to continue what they use to do at Kelantan, can you imagine what will happen to DAP members? No, there's no permanent agremement between them. Even they fight using their own 'flag' ie PAS, DAP, PKR.
- Selangor, could be there any 'try' to make PKR, PAS and DAP to fight each other? PKR only lead DAP by 2 seat. And PAS not far left behind. As you know, PAS and DAP are not a marriage from heaven. For god sake...
- Selangor got Penang a huge investment from Govt (BN). Any delay that cause by them (land decision about the mega project) will make people not happy with new state govt.
- I predict, Tudung will sell like a hot cake in Kedah and Perak!
- No more 'huuu hahhh' in Langkawi
- I hope it will not effect Banking sector becoz of less project and less loan growth.
- Paklah wakeup from day dreaming. Do it the right thing... Hmm... I guess im dreaming wight now.
- Kj will soon be a minister. People will get more angry. BN will fak-up.

REVIEW.....

ASEAMBANKERS - Maybank

...While we do not expect any change in the current macroeconomic policies, the loss of the above-mentioned States to the Opposition and the failure to obtain 2/3 majority in Parliament raised questions on a number of economic issues, namely the implementation of projects under 9MP and the regional development corridors in Opposition-controlled States, revisions to the fuel/energy prices and the introduction of Goods and Services Tax (GST). We are maintaining our 6.3% real GDP growth forecast for this year despite potential downside risks to construction activities as fuel/energy price hikes and GST may not materialize soon. -- Also please take note that.. present PM is Paklah. Not Mahathir

...The market could weaken significantly on opening (yes, we drop nearly 10% on 10/03/08). We are reducing our YE KLCI target to 1,350 point after lowering our 1-year forward target PE multiple to 14.0x (previously 15.0x) in view of the uncertainties arising from the electoral results. We anticipate further foreign selling, as what appears to be renewed selling in the S&P500 last Friday could compound concerns of a potential review of some 9MP projects and producers’ inability to swiftly raise prices on controlled or monitored items. We are downgrading construction and water to Underweight, and building materials, property and power to Neutral. We are also downgrading our call on Tenaga to Hold (previously Buy). Some 9MP or politically linked companies could face selling pressure.

....The construction sector will be most affected by the changing political landscape. We are concerned over implementation delays for yet-to-be awarded 9MP mega projects, as resources could be geared towards: (i) an overhaul of the government’s machinery and delivery system, rather than project implementation, and (ii) socioeconomic causes such as maintaining subsidies....

What next in Malaysia’s politics?
...Short term – Anwar to make a comeback via by-election after mid-April. One notable absentee in the 2008 General Election was Datuk Seri Anwar Ibrahim (DSAI) who is barred from contesting for political posts and in elections until mid-April due to his court conviction and the resultant jail sentence. However, he has been the major driving force behind the Opposition’s aggressive campaigning and resounding success in this General Election. With his wife’s (Datin Seri Wan Azizah Wan Ismail, DSWA) convincing win at the Parliament seat of Permatang Pauh in Penang, the door is wide open for him to get back into action in the Parliament. DSWA has indicated that she will step down to make way for DSAI if she retained the seat.
...Mid Term – UMNO General Assembly and Election later this year. All eyes will be on the UMNO General Assembly and party election later this year where Datuk Seri Abdullah Ahmad Badawi may face a crucial test to his leadership of the party following the outcome of the latest General Election. Former PM Tun Dr Mahathir commented that Datuk Seri Abdullah should “take responsibility and should resign”. - Undi tak percaya mungkin akan dilakukan jika ada bahagian yg BERANI memulakannya dahulu.

Impact on the economy?
...No major change in macroeconomic policy expected but there could be implications on some economic matters like implementation of the regional development corridors, fuel subsidies/prices, GST.
...The implementation of 9MP projects and regional economic corridors, especially the Northern Corridor Economic Corridor (NCER) after three of the four States in the region – Penang, Kedah and Perak – fell to the Opposition. Kedah’s new CM has indicated that the PAS-led State Government will review projects in the State. - This could lead a bad 'review' from chinese who involved in this project. And Malay who want to sell their land for a high price too!
...Revisions in fuel/energy subsidies and hence fuel/energy prices. The BN Government is very much expected to reduce fuel subsidies and raise fuel prices after the General Election, while the Opposition promised to do otherwise.
...Introduction of Goods and Services Taxes (GST) that was supposed to have been implemented in 2007 but put on hold. With the BN Government not having the 2/3 majority, GST will face a difficult passage in Parliament.

...Cautious sentiment could broaden from direct NCER beneficiaries like Equine Capital, MRCB, and Scomi Engineering (Paklah Son Company) to even perceived government friendly or supported companies like Bumiputra-Commerce Holdings, MMC Corp, the UEM group of companies and Proton. Likewise, State owned companies like PBA Holdings (Penang), Bina Darulaman (Kedah) and Kumpulan Perangsang Selangor (Selangor), are also likely to see weak investors’ sentiments.

Major projects at risks Potential casualties
Penang:
-Penang Outer Ring Road Under bidding process. MRCB (MRC MK; Not
Rated) is believed to have participated in the bid.
-Penang Monorail At final stage of award. MRCB (MRC MK; Not Rated), and Scomi Engineering (SCE MK; Not Rated) were the potential beneficiaries.
-Penang Global City Centre Equine Capital (EQC MK; Not Rated) via associate company, Abad Naluri.
-Penang 2nd Bridge UEM Group as concession holder, and construction arm, UEM Builders (UEMB MK; Not Rated) as EPC contractor with China Harbour Engineering Corp.

Kedah / Kelantan:
Trans-Peninsular Oil Pipeline Trans-Peninsular consortium, with Ranhill Bhd (RANH MK; Not Rated) as one of consortium members.
-Zon Industri Petroleum Yan Hijjaz, Prestine, Merapoh Resources, Trans-Peninsular consortium (all Not Listed).
-Zon Industry Petroleum Kota Perdana SKS Venture (Not Listed, linked to Syed Mokhtar Al-Bukhary).

Selangor / Perak:
-Pahang-Selangor water transfer tunnel Under bidding process.
Langat 2 water treatment plant Kumpulan Perangsang Selangor (KUPS MK; Not Rated), JAKS Resources (JAK MK; Not Rated).
-West Coast Expressway (Banting-Taiping) State land issues may delay the start-up of works. IJM Corp (IJM MK; Fully Valued; TP: RM6.05), Kumpulan Europlus (KEUR MK; Not Rated).

Others:
-Northern Corridor Economic Region Sime Darby (SIME MK; Fully Valued; TP: RM10.80) which is expected to take on a major role for some of the project implementation.
-Bakun Undersea Cable & Overhead Transmission Sime Darby (SIME MK; Fully Valued; TP: RM10.80), Tenaga (TNB MK; Hold; TP: RM9.80)
-Double tracking rail project (northern and southern sections) State land issues may delay the start-up of works. Northern (Ipoh-Padang Besar): MMC Corp (MMC MK; Not Rated) and Gamuda (GAM MK; Fully Valued; TP: RM3.45). Southern (Seremban-Gemas): IRCON Intl as main contractor and IJM Corp (IJM MK; Fully Valued; TP: RM60.5), Loh & Loh (LLHL MK; Hold; TP: RM5.05), and Fajar Baru (FBC MK; Not Rated) as likely sub-contractors.

CIMB

...Election statistics. The electoral turnout of 77% was the highest since 1964. PM Dato’ Seri Abdullah Badawi won the Kepala Batas constituency with a reduced majority of 11,246 while Deputy PM Dato’ Seri Najib Razak retained his seat with a wider margin of 26,464 votes. BN’s share of parliamentary seats fell from 91% to 63% while its share of the popular vote fell from 64% to slightly above 50%. Major casualties from Umno include Women, Family and Community Development Minister Datuk Seri Shahrizat Abdul Jalil and Information Minister Datuk Seri Zainuddin Maidin.

...Downgrade to NEUTRAL. In view of BN’s poor showing, we downgrade Malaysia from overweight to NEUTRAL and cut our end-08 KLCI target from 1,700 points to 1,380 points. For the first time since 1969, BN has failed to get a two-thirds majority in parliament. For the first time ever, the opposition controls five out of 13 states and the top guns of some major component parties have been defeated. Although with its simple majority, BN will form the next federal government, the huge opposition victories may mean a review of many existing government policies.

...Sectors that could lose out. Concerns will emerge over cyclical sectors such as construction and property due to possible disruptions and weakening sentiment. Investors are also likely to fret over sin sectors like gaming, NFO and brewery in view of the opposition’s control over several non-Malay belt states. Another concern is the opposition’s economic policies which include minimum wages, lower petrol prices via higher subsidies from Petronas as well as a socialist safety net.

Sectors negatively affected
...Construction – Projects not yet awarded in the west coast of Peninsular Malaysia from the central to northern region are at risk. This is bad news for contractors active in Penang including MRCB (MRC MK; Outperform), UEM Builders (UEMB MK; NR) and IJM Corp (IJM MK; Outperform). Sime Darby (SDY MK; Outperform) could also lose out as it is the master planner for NCER. Infrastructure – Toll highway companies including PLUS Expressways (PLUS MK; Outperform) and Litrak (LTK MK; NR) could see delays in toll hikes. Although the concession agreements guarantee compensation from the government and delays are technically positive for the companies, sentiment would be negatively affected.
...Water infrastructure – Questions will arise over the RM10bn Pahang-Selangor interstate water transfer project as land and water issues continue to be strongly influenced by the state. This could be bad news for water companies including Puncak Niaga (PNH MK; Outperform), KPS (KUPS MK; NR) and Jaks Resources (JAK MK; NR).
...Building materials – A slowdown in the construction sector would hurt cement and steel companies. Also, given the public’s strong aversion to price hikes, the government may be more reluctant to approve the raising of ceiling prices so soon. The market has to a certain extent already factored in likely price hikes in the near future.
...Property – Besides the general economic and stock market outlook, the property sector is also affected by the development of infrastructure which would improve accessibility and bring development to a particular area. Weaker construction activities do not augur well for developers. Penang and the Klang Valley are two major property markets for developers and a slowdown in their economies would be bad news too.
...Sin sectors – Sin products and services might face added pressure in Kedah, where PAS will lead the state government with plans to introduce hudud criminal law, and possibly in Perak where there could be a PAS chief minister. This raises the possibility of either the closure of NFO gaming outlets or curbs on the sale of alcoholic beverages in Kedah, similar to the situation in Kelantan. It remains to be seen if such a stance will be taken in the state, let alone in the tourism and tax-free island of Langkawi. We believe that NFO exposure is relatively small in Kedah but brewers might suffer downside should Langkawi be hit.

AMResearch

...Fair value cut to 1,300. We are cutting our fair value for the market from 1,590 to 1,300 by increasing the equity risk premium in our Gordon Growth Model following the ruling Barisan Nasional’s (BN) worst-ever election performance and the associated repercussions on the continuity as well as the execution of its growth-oriented policies anchored by the Ninth Malaysian Plan as well as the five Growth Corridors. -- Now paklah plan to build more school corridors.

...Select construction, property and water companies may take a beating. Selangor and Penang, two of the most industrialized states in Malaysia, will be affected in multiple ways. These two states are the prime beneficiaries of major infrastructure spending earmarked under the Ninth Malaysian Plan and NCER. It remains to be seen whether the new Opposition state government of Penang will follow through with the proposed Penang Monorail (Scomi-MRCB), the new Butterworth Terminal, the Second Bridge, Penang Outer Ring Road and the Penang Global City (Equine). The same can be said about Gamuda-MMC’s double tracking railway where the transition in state governments up north may renew concern over execution particularly given that land matters are under the purview of the respective states. For now, it is also unclear how the RM9bn inter-state Pahang-Selangor raw water transfer project will cascade down to the entities with vested interests in the water supply chain.

...Rethinking plan to remove energy subsidies? The Federal government may also have to rethink how best to remove or reduce the subsidies for petrol as the Opposition has successfully capitalized on this thorny issue to garner votes during the general elections. The speculated reduction in energy subsidies may be more difficult to push through now. In similar vein, it will be more challenging for Tenaga to lobby for an increase in electricity tariffs to reflect the passthrough of the market price of gas, currently subsidized at RM6.40/mmbtu.

...Sin’ sectors – NFOs and brewery, at risk in Kedah and Perak? We understand that the new chief ministers in the state of Kedah and Perak will likely be from the Islamic party PAS even though the Democratic Action Party (DAP) was the biggest winner in the Opposition coalition in Perak. We believe that the ascendancy of a PAS-appointed chief minister may dampen sentiment on the number forecast operators – B-Toto, Tanjong and Magnum, as well as the brewers – Guinness and Carlsberg, due to the perceived risk of potential tightening of number betting and alcohol sales in both states.

TA Securities

Unprecedented Outcome
...The KLCI is expected to correct further this week as the market sentiment could be affected by the outcome of the 12th general election and the US employment report. The outcome of the much awaited general election was shocking and the people have spoken loud and clear. The message was strong and obvious. It is a wakeup call for the ruling coalition as it was the worst ever defeat in its history. While the Barisan Nasional has secured the simple majority to form the next government with 140 parliamentary seats vs. 198 seats in 2004, the fact that it failed to retain a two-third majority in parliament and loss four more states to opposition on top of Kelantan were awful enough to suggest that much soul searching is needed to return to its glorious days. Some issues that needed immediate attention that affected the election results are corruption, mismanagement, high crime rates, rising cost of living and inability in solving communal plights.

Expect Significant Slide in the KLCI but Not a Crash
...Politics aside, what would be the implication of this shocking election on the stock market? It will be no different from last three elections which saw the market dipping immediately post election (see charts on last page). The shocking results may lead greater corrections than before. This initial reaction is expected to be short-term negative pending the announcement of new cabinet tomorrow, formation of new state governments and worries about political unrest.

...There will be some concerns about the newcomers' ability to manage and lead a state, and the level of cooperation with the federal government especially in developed states like Penang and Selangor. Only time can tell whether the professional politicians in the opposition can stand up to the task. But PAS' experience in Kelantan, ministerial posts and high profile corporate careers held by some of the opposition leaders may come in handy to provide some valuable insights in managing the states.

Expect No Reversal in Long-term Projects
The key concern would be the impact on implementation of various long-term projects, especially the Northern Corridor Economic Region, with Penang falling into the opposition's hand and Kelantan becoming a much stronger fort of PAS. As it is, the incoming Kedah Mentri Besar has already said that he will review the implementation of NCER, including the Yan Petroleum Industrial Zone project. This development may have some negative effect on share prices of stocks like MRCB, Scomi Group, Scomi Engineering and UEM World. Concerns may also arise about the implementation of other projects like the Ipor-Padang Besar double tracking and Pahang-Selangor Interstate Water Transfer, which may exert selling pressure on share prices of companies like MMC, Gamuda and Kumpulan Perangsang Selangor.

However, as many of these are long-term projects will stretch over the next 15 years and I believe the Barisan government will not be short sighted to make an about turn form their proposal unless the opposition becomes a stumbling block. The opposition should not be a stumbling block as these projects will not only contribute to sustainable economic growth but also the well being of the "rakyat". Besides, states like Selangor need alternate source of water for its growing needs and by being a stumbling block the new government will only be shooting at its foot. The voters are more matured now and they could swing back to Barisan in 2012 or 2013 if the opposition is the cause for any drag in implementation of these projects unless accompanied by valid reasons.


There are Two Sides to A Coin
It is also important to acknowledge that there are two sides to a coin. A stronger opposition means better check and balance in the system and this could go a long way in addressing in some of the pitfalls highlighted in the first paragraph. This will ensure more quorums in parliamentary proceedings and balanced views before passing any resolutions. This may go well with some foreign investors that could seize the opportunity to buy on dip.