No surprises. Budget 2013 was pretty much in line with market expectations. While disappointing to businesses, the impact will not be significantly negative to companies under our coverage except for construction and services-related companies that were flagged as productivity gain laggards (of these, our favourite Sheng Siong hires mostly elderly Singaporean citizens and will not be impacted). Offshore & marine companies are still operating below Budget 2012 labour caps and will not be affected by the lowered dependency ratios from Budget 2013. Finally, public transport operators got tossed a COE lifesaver but the impact is negligible, in our view.

No let-up in economic restructuring. To be more productive, businesses must continue to innovate and adjust. That was the key message to businesses by the government in the Singapore Budget 2013. There will be no let-up in the push to restructure the country’s economy for sustainable growth that is more driven by productivity than headcount. In fact, foreign worker levies were further raised and dependency caps were further tightened for industries that have lagged behind, such as process, construction, services (such as food & beverage) and marine.

Impact on offshore & marine industry. Other than a rise in foreign worker levies, foreign worker quotas for the Marine sector would be cut from the current 83% to 78% by Jan 2018, a move to encourage productivity in the industry. These measures in general have minimal impact on Keppel and Sembcorp Marine, given that about 65% and 55% of their respective workforce are made up of foreign workers. There is sufficient headroom for them, if they wish to hire more. However, we believe that they would more likely work towards increasing productivity and efficiency to improve margins. Increases in foreign worker levies also do not have a significant impact on both companies. We estimate that every $100 rise in foreign levy would decrease operating margins by only 0.17%.

Impact on services industries. There will be a reduction in service sector work permits to 40% from 45%, increasing the reliance on local workers. FJ Benjamin, who is already feeling the pinch from difficulties in hiring local workers to work in its stores, will be facing further cost pressures. On the other hand, Sheng Siong and Kingsmen have not relied on foreign workers as heavily and will not be as impacted. For example, Sheng Siong has opted to hire retirees and housewives as part-time workers to mitigate labour costs, and management has assured us they still have room for additional foreign workers.

Impact on construction industry. There will be a rise in foreign levy between 2014 and 2015. This is largely expected by construction companies, who have already been looking for alternative income streams to boost their return on capital. Companies who are early in the game in building recurrent income and ventured into property development such as Lian Beng and KSH will be less affected than pure construction companies such as Logistics Holdings.

Impact on transport industry. There will be a 1-year 30% road tax rebate for commercial goods vehicles, buses and taxis, taking effect on 1 July 2013. Singapore transport operators SMRT and ComfortDelGro stand to benefit through taxi road taxes, but if past practice is anything to go by, the savings are expected to be passed on to taxi drivers in full. Band-aid initiatives. To moderate cost increases, three schemes were announced, basically a mix of government co-funding of wage increases (Wage Credit Scheme where government will pay for 40% of wage increases for Singaporean employees earning up to SGD4,000 a month), dollar-for-dollar matching up to SGD5,000 for productivity and innovation activities that qualify (PIC Bonus) and corporate tax rebates over the next three years (30% of tax payable up to SGD30,000 per year). However, it is not possible to estimate savings yet.

Source: Maybank Kim Eng Research - 26 Feb 2013