What We Heard
Beyond the Speech. The Maybank–MUFG post-Budget 2027 dialogue on 16 October 2026, led by Treasury Secretary-General Tan Sri Johan Mahmood Merican alongside Maybank IB’s chief economist and MUFG representatives, offered several insights that were not covered in the Budget speech. None changes our call. We maintain our Neutral market stance, our end-2026 FBM KLCI target of 1,770 and our barbell strategy. The remarks below are as reported by the speakers at the event; the interpretation and estimates are ours.
Oil, Not Handouts, Is the Key Fiscal Swing Factor. The Treasury said Budget 2026 was prepared on a Brent assumption of USD65/bbl with petrol subsidies of about RM15bn. The bill is now expected to reach RM40bn, and the Budget keeps it at RM40bn for 2027. The Treasury added that higher oil and gas revenue has not covered the increase, because alternative crude supply is costlier, and described oil prices as stubbornly above USD100. The key market concern is whether Brent crude price will average above the Budget’s USD85/bbl assumption for 2027. Using our illustrative sensitivity of RM1.25bn of additional fuel subsidies for every USD1/bbl increase in Brent, prices averaging USD100/bbl in 2027 could add c.RM19bn to the subsidy bill. That is equivalent to c.0.8% of GDP before revenue offsets or policy adjustments (Table 2). This is a simplified scenario rather than an official fiscal forecast.
Development Spending Could Become the Release Valve. At the dialogue, MoF acknowledged that higher subsidy costs squeeze what it can afford in development expenditure. It also said the first two years of the 13MP have run below the RM86bn annual average, and signalled a 2027 focus on smaller projects that can be executed within the same year. If oil prices remain elevated, we believe development expenditure disbursement could face pressure as the government seeks to preserve its fiscal consolidation path. This is our forecast, not a government decision. For contractors, it tilts our preference towards private-sector order books, such as data centres, and small-ticket public works rather than a public mega-project re-rating.
Compliance, Rather Than New Taxes, Is the Near-Term Revenue Lever. The Treasury indicated that Budget 2027 deliberately introduced no new taxes and will prioritise compliance. LHDN's initial e-invoicing-related “nudging” exercise generated RM1.5bn in additional tax assessments (assessments raised, not necessarily cash collected). The Treasury also said SST collections have reached 3.1% of GDP, comparable to GST collections in 2017. On GST, the Treasury said the Prime Minister acknowledges its merits but does not see now as the right time given household income levels, citing a median monthly wage of RM3,000. The new sales-tax reclaim for manufacturers might be a hint of the proposed hybrid SST–GST, which is still under study. We view the hybrid model as a potential longer-term policy direction rather than an announced measure. In our view, the absence of a newly announced GST reduces the risk of an additional near-term consumption-tax shock.
Bond Market Response Has Been Supportive. The 10-year MGS yield has fallen c.15bp since Budget Day and is up only c.30bp YTD, against c.90bp for US Treasuries, with USD/MYR stable around 4.08. A short-term rally is evidence of market performance rather than conclusive proof of a re-rating on fiscal credibility, but lower yields matter. The Treasury put debt service charges at RM61bn, or c.16% of revenue, above its internal 15% comfort level. Foreign investors continue to show interest in Malaysia’s data centre sector, although power capacity and land availability remain key constraints.
GLICs and PETRONAS Carry More of the Load. MoF defended the RM25bn GLIC domesticinvestment push and cited VITROX (BUY; TP: RM11.12) and SkyeChip (BUY; TP: RM3.76) as examples of the home-grown E&E champions it wants to see listed. This signals policy support for the theme rather than direct orders or earnings for these companies. The Treasury added that PETRONAS is also investing further in Pengerang to secure fuel supply. A more stretched PETRONAS reinforces our caution on O&G services capex.
Illustrating the oil risk
The Treasury's figures imply that the 2026 fuel subsidy estimate rose by c.RM25bn as the Brent assumption moved from USD65 to USD85, a ratio of c.RM1.25bn per USD1/bbl. We use this only as an illustrative sensitivity. The increase cannot be attributed to Brent alone, since subsidy volumes, product prices, the exchange rate and policy changes all play a part, and the relationship is unlikely to be linear. Applying it to 2027 nominal GDP of c.RM2.32tn gives the scenarios in Table 2. The estimates are gross: they exclude higher petroleum income tax and PETRONAS dividends, and any tightening of the BUDI95 quota. The Treasury noted that less than 1% of users fully utilise the 300-litre quota. Given the Fiscal Responsibility Act, we believe any overrun is more likely to be absorbed through slower DE disbursement than a wider deficit.
Stay Neutral, sharpen the barbell
The dialogue reinforces our view that Budget 2027 is about continuity, not catalysts. Investors at the event summed it up as “same story, different year”. We therefore keep the market at Neutral and refine both legs of the barbell. On the growth side, we favour exposure to E&E upgrading, power capacity for data centres and private-sector construction, with the LSS6 award a catalyst to monitor. On the resilient side, we pair regulated utility earnings with mass-market consumer staples. We avoid labour-intensive companies facing the RM2,000 minimum wage, contractors reliant on public mega-project awards, and O&G services exposed to PETRONAS capex discipline.
Risks to our view
Upside risks are a faster fall in oil prices, which would free fiscal room for DE, and stronger foreign inflows if the bond rally extends. Downside risks are:
i. Brent sustained above USD100, pressuring DE disbursement;
ii. implementation friction as agencies adapt to the new procurement framework under the Government Procurement Act from 2027; and
iii. an earlier GE16 timeline.
iv. The bond market does not appear to be pricing our forecast OPR hike to 3.00% by end-2027. If the hike does not materialise, regulated yield plays such as TENAGA would benefit.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.065852 | 4.097386 |
| EUR | 4.589381 | 4.597416 |
| CNY | 0.610175 | 0.610647 |
| HKD | 0.518032 | 0.522054 |
| SGD | 3.177971 | 3.202709 |