CIMB downgrade CI to 1,290 - NEUTRAL

Petrol prices have been raised 41%, along with the price of gas sold to Tenaga. However, Tenaga will get a 18-26% electricity tariff hike from 1 Jul. IPPs will have to pay 30% windfall tax on earnings above ROAs of 9%. Plantation companies will incur 7.5-15% levies on CPO sold above RM2,000/tonne but this will be sweetened by the scrapping of the cess tax. The petrol and electricity price hikes are negative for most sectors as it will raise costs and dampen consumer sentiment. The windfall tax on IPPs is clearly negative but the impact is minimal while the net impact on plantation companies is mixed but marginally positive. Tenaga appears to be the main beneficiary as higher tariff rates should easily offset the hike in gas prices. These simultaneous price hikes and windfall taxes on investor-favoured sectors are unprecedented. We expect the market to be rattled in the short term and are lowering or end-08 KLCI target from 1,350 points to 1,290 points. Maintain NEUTRAL weighting.