Malaysia: Resilient outlook for consumer spending in 2023

PETALING JAYA: Consumer spending is expected to remain resilient going into 2023, underpinned by economic growth and stable employment markets.

However, in a report, RHB Research said the growth momentum may cool in view of the absence of spending boosters, namely Employees Provident Fund withdrawals, loan moratoriums, low interest rates, high commodity prices and pent-up demand.

“Externally, a deep global economic slowdown is a major risk, whereas internally, regulatory or policy changes such as the re-introduction of the goods and services tax and subsidy rationalisation will have material knock-on effects on consumer spending,” the research house noted.

RHB Research said 2022’s third quarter (3Q22) financial performance of companies within the consumer sector exceeded its expectations, as consumer spending remained robust despite the seasonal softness.

According to the research house, this is the third consecutive quarter where the consumer sector outperformed its expectations.

“Out of 13 companies under our coverage which have reported 3Q22 results, six outperformed, four were within expectations and three disappointed,” it noted, adding that most of the positive surprises were driven by more robust-than-expected consumer spending, benefiting consumer discretionary firms.

Nevertheless, consumer staples have continued to see cost pressures crimping margins, on the back of elevated commodity prices and fuelled by unfavourable foreign exchange rates, RHB Research said.

On recommendations, RHB Research liked companies with defensive domestic-driven businesses, sound expansion plans and strong pricing power which will enable them to deliver sustainable growth from the economic reopening-induced and elevated financial year 2022 (FY22) earnings base.

The research house, with a “neutral” call on the consumer products sector, named MR DIY Group (M) BhdGuan Chong Bhd and Heineken Malaysia Bhd as its top picks.

Meanwhile, it also noted that two poultry companies under its coverage, namely QL Resources Bhd and Leong Hup International Bhd, recorded stronger-than-expected earnings, partially due to government subsidies given as a result of ceiling price enforcement.

With the demand of chicken eggs overstripping the supply, the Agriculture and Food Security, Ministry had on Dec 6, announced that the government has agreed to import chicken eggs from foreign sources as a short- term solution to meet the domestic demand

TA Research said the import of eggs is not a viable long-term solution as imported eggs are generally more expensive than the ceiling price.“Rather than channelling subsidies to the producers, we opine that the government should lift the ceiling prices of eggs and directly provide support to the lower-income households,” it said.

It added that a big portion of the price-controlled eggs are sold to restaurants and bakeries, benefiting those who may not need them the most.

Based on its channel checks, supplies of chicken eggs, especially price-controlled grade A, grade B and grade C eggs are still tight, despite supplies increasing between 5% and 10% in recent weeks as farms delay the culling of layer hens by about 10 days.