4 Companies Poised to Benefit from Budget 2021

Deputy Prime Minister and Finance Minister Heng Swee Keat unveiled the Budget 2021 in Parliament on Tuesday, 16 February 2021, which is known as the “Emerging Stronger Together Budget”.

According to the Budget, Singapore’s GDP contracted by 5.4% in 2020 despite the largest budget support since Singapore’s independence valued at $64.9 billion, or 13.9% of Singapore’s GDP.

A quick recap for Singapore Budget 2021 indicates a list of measures such as:

• Extension of Job Support Scheme (“JSS”) for Hard-Hit Sectors.

• Promoting the adoption of Electric Vehicle.

• COVID-19 Driver Relief Fund for Land Transport Sector.

• Agri-food cluster transformation fund to boost local production through technology.

• Deepening global and South-east Asia partnerships through Digital Connectivity and Infrastructure Investments.

• Co-funding digital transformation for mature enterprises, Venture Debt Program for high growth Enterprises.

In this article, we will be touching on 2 such measures and how 4 companies can stand to benefit from them.

Measure #1 - Extension of Job Support Scheme (“JSS”)

In Budget 2021, the JSS will be extended for sectors that continue to be hit hard by the pandemic.

For firms in Tier 1 sectors such as aviation, aerospace and tourism:

• JSS will be extended by six months.

• Firms will receive 30 per cent support for wages paid from April to June 2021.

• Firms will receive 10 per cent support for wages paid from July to September 2021.

For firms in Tier 2 sectors such as retail, arts and culture, food services and marine & offshore:

• JSS will be extended by three months.

• Firms will receive 10 per cent support for wages from April to June 2021.

Here are 3 companies that fall within these 2 tiers and stand to benefit from the Job Support Scheme.

1) Singapore Airlines Limited (SGX: C6L)

Singapore Airlines Limited (“SIA”) is engaged in passenger and cargo air transportation, engineering services, training of pilots, air charters and tour wholesaling and related activities.

For SIA’s trailing 12-month financial performance, it has suffered a revenue decline (“Blue Bar”) of around 42% to S$9.28 billion due to COVID-19 pandemic. Coupled with high operating costs, SIA slipped into a loss ("Purple Bar") of S$3.87 billion in the same period.

The continuation of JSS will help SIA reduce part of their operating expenses and continue to keep their workforce of pilots and air stewardess, in preparation for the reopening of commercial flights. The recent fund-raising exercises could help SIA stay solvent in this tough operating environment too.

2) Straco Corporation Limited (SGX: S85)

Straco Corporation Limited (“Straco”) is a leading developer and operator of premier tourism-related attractions with assets span across Singapore and China. The Singapore Flyer is one of the world's largest Observation Wheels standing at a height of 165m and is one of Asia's biggest tourist attractions.

For Straco’s trailing 12-month financial performance, the Group’s revenue (“Blue Bar”) declined by 41% to S$64.05 million. The decline was mainly due to the significant reduction in footfall in their attractions located in Singapore and China.

As a result of the sharp decline in topline, Straco’s profit after tax (“Purple Bar”) suffered a drop of 64% to S$14.38 million in the same period.

Given that footfall in Straco’s attraction have not recovered to Pre-COVID level, the JSS should help Straco to continue cover part of their operating expenses.

3) Sembcorp Marine Limited (SGX: S51)

Sembcorp Marine Limited (“SembMarine”) provides innovative engineering solutions to the global offshore, marine and energy industries. The Group focuses on four key capabilities, namely, Rigs & Floaters; Repairs & Upgrades; Offshore Platforms and Specialised Shipbuilding.

For trailing 12-month financial performance, SembMarine’s revenue (“Blue Bar”) dipped by 28% to S$2.24 billion. The decline was mainly due to the Circuit Breaker Period in Singapore (April – June 2020), which resulted in the shutdown of production activities causing significant delays to project executions.

Despite a reduction in operating expenses, SembMarine still posted a bigger loss (“Purple Bar”) of S$325.75 million in the trailing 12-month period as compared to -S$140.18 million a year ago.

With the marine & offshore sector under Tier 2 of JSS, SembMarine can expect another 3 months of JSS, where the Group can stand to receive 10 per cent support for wages from April to June 2021.

Measure #2 - COVID-19 Driver Relief Fund for Land Transport Sector

As part of the package in Budget 2021, the COVID-19 resilience package will also include funding of $133 million for the existing COVID-19 Driver Relief Fund, which will help taxi and private hire car drivers affected by the pandemic to defray business costs.

Eligible drivers will get $600 per month from January to March, and $450 per month from April to June.

One company is a direct beneficiary of this relief fund – the largest taxi operator ComfortDelGro.

4) ComfortDelGro Corporation Limited (SGX: C52)

ComfortDelGro Corporation Limited (“ComfortDelGro”) is one of the world’s largest land transport companies with a total fleet size of over 40,000 buses, taxis and rental vehicles. The Group also run 83km of light and heavy rail networks in Singapore.

Its global operations span seven countries – Singapore, Australia, China, the United Kingdom, Ireland, Vietnam and Malaysia.

For FY2020, ComfortDelGro’s revenue (“Blue Bar”) fell by 17.2% year-on-year to S$3.22 billion. The impact of the COVID-19 pandemic affected all the Group’s operation across seven countries, with non-essential services being the hardest hit.

With a decline in its topline, increase in depreciation & amortization costs and lower net income from investments, ComfortDelGro’s profit after tax (“Purple Bar”) declined by 70.8% year-on-year to S$92.7 million. If we were to exclude Government assistance grants, ComfortDelGro would have slipped into a full-year operating loss of S$46.2 million.

The COVID-19 Driver Relief Fund will allow taxi drivers to defray their rental costs during this difficult period. In turn, ComfortDelGro stands to benefit as there is a low likelihood of a mass departure of taxi drivers. This will provide stability for its taxi business in the short run.

Conclusion

Despite heading into Phase 3 reopening since 28th December 2020, there are still many companies facing tough operating environments. The various measures in place will further lend a helping hand to those businesses.

However, given the uncertainty ahead, investors should do due diligence and invest with caution.

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