Key features: Targeted assistance for the poor by making healthcare more affordable, more financial incentives for SMEs to transform and restructure.

Marginally positive for the healthcare and telecom sectors.

No major implications for the stock market. Maintain Neutral with year-end FSSTI target of 3,500. Top market picks: DBS, Wilmar, SembCorp Marine, SIA Engineering and Ezion.

No surprises – proposals well-flagged in advance

As highlighted in our 2014 Strategy Outlook report on 6 January, Singapore Budget 2014, which was unveiled last Friday, offered no surprises. Most of the financial support or incentive schemes for the poor and SMEs will be extended, if not enhanced. And there were no policy changes for the property sector, as expected. Given that most measures were already in the mainstream, we do not anticipate any major implications for the stock market. The government expects an overall budget deficit of SGD1.2b or 0.3% of GDP for FY14. The deficit will be funded by surpluses recorded in the past few years.

Marginally positive for healthcare, telecom sectors In our view, the Budget should have some marginally positive, albeit difficult to quantify, impact on the healthcare and telecommunications sectors. The former will benefit from policy tweaks that make private medical services more affordable to the lower-to-middle-income groups. The telecom sector should benefit from a SGD500m information, communications and technology initiative for SMEs over the next three years. On the other hand, the construction sector is a marginal loser with a SGD100 increase in levy on basic-skilled foreign workers that will be imposed starting Jul 2016.

A stock-picking market

Trading at 13x forward P/E and 1.4x historical P/BV, the Singapore market valuation looks modest from both the historical and regional perspectives. An improving macro outlook supports our view that the FSSTI would hit 3,500 by year-end, based on 15x 2014E P/E, or an implied historical P/BV of 1.6x.

We would recommend that investors stay selective, with aviation services, banks, healthcare and offshore and marine our preferred sectors. Our top five market picks are DBS, Wilmar, SembCorp Marine, SIA Engineering and Ezion.  

Source: Maybank Kim Eng Research - 24 Feb 2014