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       PETALING JAYA: Blue chip stocks took a hit following the surprise announcement of higher taxes for very profitable companies under Budget 2022 to help the government alleviate its debt burden.

       Last Friday, the Finance Minister said a one-off special tax, known as Cukai Makmur or “prosperity tax”, would be imposed on companies that have a pre-tax profit of above RM100mil. Profit above that threshold would incur a tax rate of 33% for the year of assessment of 2022.

       This is expected to largely affect companies in the banking, brewery, tobacco, utilities, gloves, telecommunication, automotive, palm oil and technology sectors.

       Additionally, the decision to raise stamp duties on stock trading contract notes may also dampen Bursa Malaysia’s trading velocity and add to potential market misery.

       News of the prosperity tax sent the benchmark index 31.39 points or 2.01% lower to 1,530.92 at yesterday’s close.

       Banks were among the top losers yesterday as well as food and beverage players, which were weighed down by the higher excise duties on sugary drinks.

       In a note yesterday, RHB Research estimated that the windfall tax could have a worst-case impact of up to 12% on corporate earnings, although it added that this should be offset by the positive spillover to the broader economy from the expansionary budget proposals.

       The research house pointed out, however, that such a tax is unprecedented in scope and scale and may be categorised by investors as a policy risk, reflecting the country’s narrow revenue bandwidth and limited fiscal headroom.

       “While the ongoing domestic economic recovery story will be supported by the consumer-friendly Budget 2022, evolving policy risks and the market’s adjustment to the broad scope of the windfall tax will add to market volatility,” it said.

       Meanwhile, CGS-CIMB estimated a smaller impact of 6.6% or RM4.4bil to 2022 FBM KLCI earnings.

       “After considering the ‘prosperity tax’, FBM KLCI earnings could potentially fall by 6% in 2022 versus our current forecast of 0.5% growth. Also, there could be a downside risk to 2022 earnings if companies decide to front-load expenses, delay progress billings/income recognition and/or raise provisions to lower their tax expenses.”

       Some companies could also reduce dividend payments due to the higher taxes.

       PublicInvest Research said: “The windfall tax across the board could ensure a more equitable contribution from other industries towards helping the rakyat.”

       Note that only banks previously bore the cost of interest waivers and the repayment moratoriums during the various periods of lockdown in the past 1？ years.

       However, at 33%, the rate proposed appears high.

       “The ‘windfall tax’ isn’t exactly taxing windfalls, it taxes companies making more than RM100mil and seems to ‘penalise’ some larger companies just for being a little more profitable than others.

       “Expected to cost some RM8bil in additional taxes (and by extension, lowering profits of these companies and returns to shareholders by the same amount), the ‘damage’ to the market may be worse though this could only be short-term,” it said.

       That said, PublicInvest maintained that Budget 2022 is sufficiently well-crafted, and is likely to be able to aid in meeting 2022 economic growth expectation of between 5.5% and 6.5% as guided by the Finance Minister.

       It believed measures announced under the annual budget should be sufficient to sustain consumer spending next year and help in the recovery of the services and consumer sectors, in particular.

       Other winners of the budget include the automotive sector, thanks to the extension of the sales tax exemption until June 2022 and the comprehensive tax incentives for electric vehicles, and the property sector with the abolition of the real property gains tax on properties sold after five years, from 5% previously.

       PublicInvest opined that the knee-jerk reaction in the market will be short-term as investors digest the shock of the “prosperity tax”.

       The brokerage kept its year-end 2021 FBM KLCI target of 1,590 points unchanged.

       “Our stock suggestions for 2021 have been a mix of cyclical names to capture upsides from eventual economic re-opening and business normalcy, and stocks likely to see multi-year growth stories.

       “Companies likely to still feature (on this list) going into 2022 are Hibiscus Petroleum Bhd, Malayan Banking Bhd, SKP Resources Bhd and D&O Green Technologies Bhd,” it said.

       RHB also viewed the sharp pullback in the market as an opportunity to re-weight into recovery plays at lower levels, including looking out for “bombed-out” stocks.

       It is “overweight” on sectors such as banks, healthcare, gaming, basic materials, oil and gas, transport and logistics.

       Meanwhile, UOB Kay Hian Research noted that the market should trend up once again as investors swiftly refocus on economic reopening.

       UOB Kay Hian has maintained its end-2021 FBM KLCI target of 1,635 points, which implies 16.2 times 2021 price-earnings ratio.

       “While we expect a minor knee-jerk market reaction to the street’s 2022 earnings downgrade in reaction to the corporate tax rate hike, Q4 2021’s substantial economic reopening and recovery should ensure the equity market’s recovery.

       “Thematically, the economic reopening, commodity super-cycle and selected technology plays should remain in Q4’s spotlight.”

       Among its top picks, the research house foresees near-term catalysts for CIMB Group Holdings Bhd, Genting Malaysia Bhd and My E.G. Services Bhd.