KUALA LUMPUR (Oct 3): Malaysia's proposed Budget 2015 and goods and services tax (GST) will have a neutral effect on the technology sector, according to Kenanga Investment Bank Bhd.

Budget 2015 is scheduled to be announced next Friday (Oct 10) while the GST will be implemented starting April 2015.

In a note today, Kenanga said exporters would be able to zero rate their supply of goods at the time when the items are exported. This is based on the draft version of the GST general guide from the Royal Malaysian Customs.

“While goods and services acquired in order to make the final products for the tech companies will incur GST which is referred to as input tax under the GST rules, a manufacturer is allowed to claim input tax credit on any GST incurred on his purchases which are input to his business,” said Kenanga.

Going forward, Kenanga said the smartphone, tablet and automotive segments remained as catalysts for the technology segment.

However, Kenanga said the catalysts would not apply to the segment as a whole as companies under the research firm's coverage had a different product mix.

“While both Malaysian Pacific Industries Bhd (MPI) and Unisem (M) Bhd have relatively high exposure to these segments, we prefer MPI with its resilient earnings prospect, premised on the strategic product mix which gives a balanced exposure of cyclical segments and defensive segments,” said Kenanga.

The strengthening of the US dollar against the ringgit will be positive for exporters.

Kenanga expects an exchange rate of RM3.21 and RM3.24 for 2014 and 2015 respectively.

“Based on our sensitivity analysis, every 1% fluctuation in the USD will impact our CY14E-CY15E NP (net profit) estimates in MPI and Unisem by 0.5%,” it said