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Thailand: KS sees consumption boost for retail stocks this year
Domestic private consumption is expected to improve on the back of a recovery in purchasing power in the farm and non-farm sectors, providing a boon for equity investment in the retail sector, says Kasikorn Securities (KS).
Farm income is expected to gradually recover on increasing prices for rice, chicken and swine, while non-farm income should remain healthy as a weaker contribution from tourism is offset by a gradual recovery in foreign direct investment and infrastructure project bidding, said KS senior vice-president Tareetip Wongsaengpaiboon.
Although the growth contribution of the tourism and export sectors may fade, this will be offset by a gradual recovery in private investment and infrastructure project bidding, Ms Tareetip said.
Domestic consumption is expected to be solid in 2019, with non-farm income earners poised to remain the key contributors to overall consumption, she said.
Key domestic events boding well for domestic consumption include the general election scheduled for March 24 and the celebration of His Majesty the King’s coronation on May 4, Ms Tareetip said.
KS believes a new government will continue the subsidy measures introduced by the incumbent administration to support low-income earners, such as the value-added tax exemption and the cost-of-living subsidy scheme.
“Domestic factors are expected to boost economic activity in the first half and spur consumption, especially in the provinces,” Ms Tareetip said.
Private consumption is projected to expand by 3.5% based on economists’ consensus, she said.
Stocks anticipated to benefit from this outlook are CPALL and BJC, as they are staple retailers who stand to benefit from the government’s stimulus measures, according to KS.
Staple retailers will outperform discretionary retailers during the global economic uncertainty, Ms Tareetip said.
KS expects same-store sales growth for staple retailers to improve on resilient domestic consumption, a rebound in food prices, a relatively low base in 2018 and network expansion.
This year’s aggregate revenue for three covered staple retailers, BJC, CPALL and MAKRO, is expected to grow by 7.4% year-on-year to 918 billion baht, which would boost net profit by 8.9% year-on-year to 36.2 billion baht.
“We believe that the global economic slowdown is having only a limited impact on domestic consumption because sales are mostly dependent on local consumers,” Ms Tareetip said. “Although the global slowdown will cause Thai wealth to decline, we see a limited impact on companies that sell necessities, such as BJC, CPALL and MAKRO, while discretionary and cosmetics retailers will feel some pain from the slowdown.”
Source: https://www.bangkokpost.com/business/news/1636850/ks-sees-consumption-boost-for-retail-stocks-this-year