SINGAPORE (Feb 21): Going simply by dollars and cents, Budget 2020’s centrepiece is the huge $6.4 billion package to help tackle the economic fallout following the coronavirus outbreak and lingering economic weakness from the previous year.
Of the $6.4 billion, $4 billion is allocated to a Stabilisation and Support Package to give targeted help to sectors and workers so that they can stay viable as the economy powers through the coronavirus outbreak. Another $1.6 billion is allocated to households to defray their costs of living and $800 million is dedicated to the frontline staff in the healthcare industry.
Specifically, the Stabilisation and Support Package is meant to benefit the tourism, aviation, food and beverage services, retail and point-to-point transportation companies and workers. These sectors are deemed as the most affected amid the coronavirus outbreak in Singapore, especially after Singapore has placed a travel ban on China visitors.
However, even with the support, hospitality trusts are still expected to experience a challenging environment on the back of a slowdown in tourist arrivals and drag on occupancy and room rates.
For example, although there is a 30% property tax rebate for the hospitality sector, CGS-CIMB Research thinks the impact will be “generally minimal”. “We estimate savings of 1-2% and 1-3% of net property income and distributable income, respectively, for hospitality REITs,” says CIMB analyst Lim Siew Khee in a Feb 19 report. “For Singapore hotel owners such as UOL, tax savings are minimal at about 1% of net profit. We think this change will have a neutral to slightly positive impact on share prices of REITs and developers.”
Meanwhile, UOB Kay Hian has a “hold” call on Far East Hospitality Trust (FEHT), which it believes will be the biggest beneficiary of the 30% tax rebate as it is a pure play on Singapore’s hospitality sector. UOB estimates FEHT, which owns 13 properties – including nine hotels and four serviced residences – will see a 4% increase in DPU from 2.73 cents to 2.84 cents.
On the other hand, OCBC believes that Suntec REIT will benefit from the Stabilisation and Support Package. Its retail tenants within the Suntec City will qualify for a 15% tax rebate, while its convention business is able to enjoy the maximum 30% rebate. Other Singapore REITs set to benefit, according to OCBC, are Ascendas REIT as well as CapitaLand Mall Trust.
Apart from the retail and convention business, Singapore’s integrated resorts will be granted a 10% tax rebate. UOB Kay Hian believes that this would be marginally positive to Resort World Sentosa’s (RWS) property tax expenses with savings estimated at about $1 million to $2 million, or less than 1% of net profit. RWS is owned and managed by Genting Singapore. UOB Kay Hian also has a “market weight” rating on Singapore’s gaming market.
Meanwhile, HDB will be giving half-month’s worth of rental waivers to commercial tenants. For this, UOB Kay Hian sees food court operator Koufu and supermarket operator Sheng Siong as beneficiaries.
“While we estimate roughly 50% of Koufu’s outlets are located around HDB estates, we think the cost savings from the rental waiver will potentially be passed on to its stall tenants. For Sheng Siong, we estimate more than 70% of its stores are HDB units, some of which are rented from private landlords. We estimate 1.5% to 2.1% positive earnings impact, based on an assumption that 35-50% of total rent is paid to HDB,” says UOB Kay Hian. Another food and beverage counter to see a slight positive impact is Jumbo. According to CGS-CIMB, rental constitutes about 17% of its total operating expenses in FY2019.
And there is relief for the aviation sector too. Singapore Airlines, for one, will enjoy a reduction in landing and parking charges along with rebates could amount to $25 million in cost savings, while cost savings from the Jobs Support Scheme could amount to a similar quantum, estimates UOB Kay Hian.
SATS is also expected to benefit from the Jobs Support Scheme as its wage bill accounts for 50% of its operating expenses. Budget 2020 did not specify a reduction in licensing fees, but allowed for a 10% rebate on rental fees. SATS will also benefit from a 15% reduction in property tax rebate on the Marina Bay Cruise Centre.
Walking the plank
Foreign workers have always played a large part of Singapore’s workforce, but the government has generally kept the growth of this workforce low. At the Budget, Minister Heng Swee Keat announced a reduced S-Pass sub-dependency ratio ceiling (DRC) for the construction, marine shipyard, and process sectors from 20% to 15%. This cut will be phased in two steps: First from 20% to 18% on Jan 1, 2021; and subsequently to 15% on Jan 1, 2023. Foreign worker levy for all sectors will stay flat for the remainder of this year.
On the back of this, DBS Group Research says demand for skilled labour could accelerate as the sector bottoms out over the next few years after halving the workforce in the recent downturn. Ship and rig yards could end up incurring higher costs to adopt training programmes and offer more attractive remuneration to entice local skilled workers during the transition.
CIMB’s Lim says: “We are slightly disappointed by the unchanged workers levy as well as the reduction of S-Pass DRC for construction and marine sectors. These measures do not help companies such as Keppel Offshore & Marine, Sembcorp Marine and Yongnam that have a relatively high reliance on foreign workers.”
However, in the short term, DBS sees this move as slightly positive for the marine sector, which was expected to see foreign work levy hikes from July this year. This is now deferred by another six months. According to DBS’s estimates, this is expected to bring about cost savings of $50 to $100 per basic tier worker. This could then translate into about $2.5 million to $3.5 million in savings for Singapore rig builders in 2H2020.
