AmInvest Research lists Berjaya Food, Mynews, Power Root top picks

As producers of staple products, Power Root will be a potential beneficiary of improved consumer spending.

KUALA LUMPUR: AmInvestment Research is retaining its overweight call on the consumer sector as it expects consumer sentiment to remain healthy with Berjaya Food, Mynews, Power Root as its top picks.

It said on Monday the recent consumer-friendly initiatives such as the reintroduction of petrol subsidy, capping of the electricity tariff and introduction of public transport subsidies have contained the problem of rising cost of living and effectively put more money back into the pockets of consumers. 

The substitution of the goods and services tax (GST) with the sales and services tax (SST) is a net positive to consumers as the SST has a narrower scope compared with the GST.

The improved consumer sentiment is manifested in the uptick in the Consumer Sentiment Index as measured by the Malaysian Institute of Economic Research (MIER), where the index has recovered beyond the 100-point confidence threshold after three years of a low sentiment trend. 

“We believe the positive trend in consumer sentiment will be sustained as consumers become more confident of the government with expectations of a more rakyat-centric government policies, better governance and transparency. 

“We project private consumption to grow at 6.5% YoY. This is on the back of a healthy labour market as well as stable inflation,” it said.

AmInvest Research said food and beverage sub-sector does not typically benefit from greater disposable income. However, given the unique properties and circumstances of the companies under its coverage, Berjaya Food, Mynews and Power Root are the top picks for the sector.

The downside risks which may prompt us to review its call for the sector are the weakening of the ringgit against the US$ (2019 house assumption average: RM4.12). 

• Berjaya Food and Padini are beneficiaries of a stronger ringgit. Half of Berjaya Food’s raw material is purchased in US dollar while 70% of Padini’s raw material is sourced from China.

• Sluggish improvement to economic fundamentals, leading to a derating of the sector. A sluggish recovery in economic fundamentals such as high operational costs and a weak ringgit may not see consumers fully benefitting from savings tied to the SST reintroduction and consumer-friendly measures, thereby dampening the recovery in consumer sentiment.

“Top pick for the sector is Berjaya Food (Buy, FV: RM2.01/share): We believe that Berjaya Food is a beneficiary as we believe improved consumer sentiment will drive discretionary spending.

“Mynews (Buy, FV: RM1.66/share): We believe Mynews will be an indirect beneficiary of the public transportation subsidy. We reckon that this measure will boost foot traffic surrounding the train stations. Mynews currently operates more than 30 stores in the MRT, LRT and monorail stations.

“Power Root (Buy, FV: RM1.65/share): As producers of staple products, Power Root will be a potential beneficiary of improved consumer spending. Presently, the company is undervalued, trading at 12 times price-to-earnings (PE) compared with OldTown which previously traded at an average of 15 times forward PE. 

“Power Root will also benefit from a stronger US$ as around 50% of its sales are in exports. Our house projection for the US$/MYR is at an average of 4.12 in CY19,” it said.