Hard hit aviation, tourism sectors get biggest help in wage subsidies

Singapore

THE battered services and labour-intensive sectors plus supermarket and F&B operators on the Singapore bourse got a much-needed boost amid the dark clouds of Covid-19 from the government's "fiscal bazooka" unveiled on Thursday.

The strong support for sectors that have been hardest hit by the outbreak will lift the "burden of staff costs" for the likes of Singapore Airlines (SIA) and ground-handling and in-flight catering service provider SATS, according to CGS-CIMB Research analyst Lim Siew Khee.

"But the revenue pressure is there so we don't expect corporates to 'profit' from this," she added.

Travel restrictions and widespread lockdowns across the globe to contain the spread of the coronavirus have dealt a big blow to both SATS and SIA and, with the worst yet to come, analysts expect their recovery to take awhile.

The S$750 million aid package for the aviation sector involves wage subsidies by the government and efforts to slash costs for airlines, ground handlers and cargo agents.

"We believe that these measures will help alleviate the challenges of operating under present circumstances, but for stock prices to move higher, earnings (which will include a pick-up in tourism receipts and higher sales at malls) have to start picking up and this looks unlikely to happen for the near to medium term," said OCBC Investment Research head Carmen Lee.

Nonetheless, Mr Heng's measures were enough to propel SATS shares - which have been one of the worst performers lately - up 23 cents, or 7.4 per cent, at S$3.32, outperforming the key Straits Times Index which closed 0.7 per cent lower.

IG Markets' Jingyi Pan reckoned the aviation and tourism stood out as the sectors that will be getting the biggest help from the support package in terms of wage subsidy from the government at 75 per cent.

Another major beneficiary is casino operator and leisure giant Genting Singapore, which owns Resorts World Sentosa.

The measures will make a "significant difference" for labour costs during the crisis, she said, adding that the measures had "vastly exceeded expectations on every end".

The government's cash handouts are also expected to help improve consumer purchasing power, which in turn could benefit consumer staples such as Sheng Siong as households buy more groceries.

Catalist-listed Jumbo Group, which has been hurt by the outbreak as its food service brands largely cater to tourists, corporate dining and social gatherings, could also find relief from the latest measures.

The seafood restaurant operator has been seeing lower revenue traction from its operations in Singapore and China and has taken steps to reduce casual labour to cut manpower costs while it has been actively engaging its landlords to negotiate for better rental rebates.

"This (cash handouts) is a steroid jab in the arm for consumers who will feel a little more assured, and perhaps they might feel they have a little bit more spending power going ahead. Hopefully, the fiscal multiplier effect will provide some support for the services sectors," said OCBC Bank's head of treasury research & strategy Selena Ling.

While the magnitude of the stimulus should cushion the "negative shock", Jefferies analyst Krishna Guha reckoned that bank and property counters are likely to trade range bound barring further liquidity and credit stresses.

Ms Jingyi expects the market to remain under pressure in the short term as sentiments continue to be hurt by the outbreak.