Malaysia consumer sector expected to remain robust
PETALING JAYA: The consumer sector will continue its sturdy performance with resilient domestic demand and improvements in supply chain that will ease restocking activities.
There is also margin stabilisation with commodity prices trending down post-price hikes implemented in 2021 to 2022.
Companies that are able to pivot and provide better convenience to customers will have the upper hand in grabbing the ringgit spent, said Hong Leong Investment Bank (HLIB) Research.
This does not come without challenges with the weakening consumer sentiment normalisation of revenge spending, recessionary risks and inflation-led declines in real wages and income to dampen the outlook.
The research house is maintaining its “neutral’’ call on the sector.
Its top picks for the consumer sector are Berjaya Food Bhd, for which it has a “buy” call and a target price (TP) of RM1.31 a share. This is based on a price-to-earnings ratio (PE) for the financial year 2023 (FY23).
It is positive on Starbucks, which continues to grow via new outlet openings and higher sales from active promotions and a leaner concept that Kenny Rogers Roasters stores have adopted. This would enable the Berjaya Food group to continue maintaining its profitability.
HLIB Research also has a favourable outlook on Focus Point Holdings Bhd (“buy” call, TP: RM1.51 a share) based on a 14-times PE.
Moving forward, management will focus on expanding both the double pillars of growth, namely, the optical and food and beverage (F&B) segments.
HLIB Research said the new corporate clients in F&B are expected to come on-stream towards early FY23, which could contribute sizeable earnings to the group’s bottom line.
The research house said earnings for the consumer sector for the third quarter of 2022 were mixed, as the merits of reopening were partially dragged by inflationary pressures and rising interest rates.
It said the trend showed weakness in quarter-on-quarter earnings, with the absence of the festive season (Hari Raya), coupled with normalisation after the reopening highs.
Year-on-year improvement was led by the low base effect from suboptimal business operations in FY21.
HLIB Research said margins for the sector continued to be challenged by higher input costs such as raw materials, higher minimum wages and a hike in the electricity tariff surcharge.
One of the trends HLIB Research observed across the consumer space was the many ways businesses were trying to get a bigger share of consumer spending by adapting to buyers convenience.
This could be seen with Mr DIY Express and its smaller stores focused on upper urban and rural towns, as well as Berjaya Food’s expansion through outlets (priority of 50% from total planned new stores).
This includes Focus Point’s strategy of expansion in Komugi street-shop; QL Resources Bhd’s addition of the Family Mart Mini Smart Kiosk vending machines; 7-Eleven Malaysia Holdings Bhd incorporating cafe concepts in its convenience stores; SDS Group Bhd expanding its reach via collaborations with big retailers; and Farm Fresh venturing in direct-to-consumer Jomcha milk tea outlets.