New high for Dagang NeXchange Bhd
PETALING JAYA: Despite the weak consumer sentiment, consumer stocks could see a 5% growth in revenue and earnings this year owing to real private consumption growth.
Maybank IB Research on Tuesday said it is projecting revenue and aggregate earnings growth of 5% for its basket of consumer stocks this year amid a weak consumer sentiment.
Maintaining a neutral stance on the consumer sector, the research house said valuations for most of the stocks are already fair, leading to average 2017/18 sector price earnings ratios (PERs) of 26.3 to 23.6 times, with selective buys on Atlan Holdings Bhd
and Bison Consolidated Bhd.
Atlan is a value and defensive stock with mergers and acquisitions (M&A) potential and Bison has a strong growth profile and has delivered three-year average net margins of 6.8% versus SEM’s 2.9%, it noted.
“We project earnings growth (ex-British American Tobacco (M) Bhd (BAT) of 5.1% in 2017 for our basket of consumer stocks (+1.7% in 2016) on the back of 5.3% revenue growth (+6.3% in 2016). Net profit margins are expected to stay flat into 2017 (FY15/16: 8.8%/8.4%).
“While sales could pick up, we believe that normalising raw material costs and possibly some step up in A&P/discounts to maintain market share could cap bottomline growth for now,’’ it said.
The research house added that Q1 17 topline growth ranging 2-11% for its basket of consumer stocks was mainly driven by volumes, new product launches and advertising and promotions (A&P).
At the earnings before interest and tax (EBIT) level, however, the brokerage noted that some have posted up to double digit declines year-on-year (y-o-y) in Q1 17 on higher operating expenditure (opex) like staff cost and the possibly phasing of A&P.
Taking into account 12 months rolling EBIT margins, Maybank IB noted that multinational corporations (MNCs) continued to have been able to deliver expansion in margins as they fine-tuned their focus on cost efficiencies.
In contrast, EBIT margins for retailers such as AEON and SEM have been on a downtrend since 2014, it said, adding that the research outfit’s basket of stocks delivered -13% y-oy bottomline growth in Q1 17.
On consumer sentiment, Maybank IB said while consumer sentiment remains soft, real private consumption growth has been sustaining its uptrend since Q4 15, as have retail sales.
Its Economics Research team believes this is due to government’s measures to boost disposable income which continues into 2017 - increased allocation for cash handouts/BRIM, higher minimum wage, cut in workers’ contribution to EPF and personal income tax reliefs.
Additional tailwind in 2017 is the continued growth in tourist arrivals (+4% in 2016), as Malaysia plays host to events such as ASEAN@50 year, 2017 SEA Games (Aug) and Para ASEAN Games (Sept).
Separately, while there is no clear spending trend before and inclusive of the quarter in which the General Elections (GE) were held in the past, it noted that consumer spending strengthened one to two quarters post GE in non-crisis GE years.
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