SINGAPORE (Feb 21): Credit Suisse is raising its 2018 GDP growth forecast for Singapore to 3.3% on the back of expectations of higher private consumption growth following the 2018 Budget announcement on Monday.
“The key surprise in the 2018 Budget was a later-than-expected implementation of a 200 basis point increase in the Goods and Services Tax (GST) to the 'earlier part of 2021-25',” says analyst Gerald Wong in a report on Tuesday.
Finance Minister Heng Swee Keat in his 2018 Budget statement on Monday said Singapore will raise its GST by 2 percentage points to 9% sometime between 2021 and 2025.
According to Heng, the GST hike will support recurrent spending to benefit Singaporeans. However, the exact timing of the tax increase will depend on the state of the economy, how much expenditures grow, and how buoyant existing taxes are.
See: Singapore delays highly-anticipated GST hike to 9% to between 2021-2025
“Together with one-off cash handout of $100-300 per Singaporean, we have raised our private consumption growth forecast in 2018 to 3.6%, from 2.9% previously,” says Wong.
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The revision lifts Credit Suisse’s estimate further above the consensus forecast of 2.4%.
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“We expect a robust economy to drive acceleration in earnings growth, while the increasing contribution of Net Investment Return to government revenues will likely lead to higher dividend payout by Temasek-linked companies,” Wong says.
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Meanwhile, Wong opines that an increase in the top marginal Buyer's Stamp Duty for residential property to 4%, to be applied to the portion of a property’s value exceeding $1 million, is likely to have a “limited impact” on sentiment.
“We continue to expect transaction volumes to increase by 36% y-o-y and prices to rise by 5-10% in 2018,” he says.
According to Credit Suisse, five stocks that could benefit from the delay in the implementation of the GST increase are Genting Singapore (GENS), CapitaLand Mall Trust (CMT), Mapletree Commercial Trust (MCT), Frasers Centrepoint Trust (FCT), and SPH REIT.
“Consumer-related stocks, including Genting Singapore and CMT, have been laggards due to GST concerns, and could re-rate with a significant overhang removed,” Wong says.
Credit Suisse has an “outperform” rating on GENS with a target price of $1.60.
As at 12.20pm, shares of GENS are trading 1 cent up at $1.30, implying an estimated price-to-earnings ratio of 20.8 times, a price-to-book ratio of 2.0 times, and a dividend yield of 2.5% for FY18.
Credit Suisse has an “outperform” rating on CMT with a target price of $2.30.
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As at 12.20pm, units of CMT are trading 2 cents down at $1.98, implying an estimated price-to-earnings ratio of 18.4 times, a price-to-book ratio of 1.0 times, and a dividend yield of 5.7% for FY18.
Credit Suisse has an “outperform” rating on MCT with a target price of $1.73.
As at 12.20pm, units of MCT are trading 2 cents down at $1.56, implying an estimated price-to-earnings ratio of 19.5 times, a price-to-book ratio of 1.1 times, and a dividend yield of 5.7% for FY18.
Credit Suisse has a “neutral” rating on FCT with a target price of $2.26.
As at 12.20pm, units of FCT are trading 3 cents up at $2.18, implying an estimated price-to-earnings ratio of 19.0 times, a price-to-book ratio of 1.1 times, and a dividend yield of 5.9% for FY18.
Credit Suisse has a “neutral” rating on SPH REIT with a target price of 98 cents.
As at 12.20pm, units of SPH REIT are trading half a cent up at $1.00, implying an estimated price-to-earnings ratio of 20.5 times, a price-to-book ratio of 1.1 times, and a dividend yield of 5.7% for FY18.
