Affin Hwang maintains 'neutral' on consumer sector, QL Resources is top pick

  • Analyst Reports
  • Monday, 15 Jun 2020

KUALA LUMPUR: Affin Hwang research is maintaining its preference for staple food producers over retail, tobacoo and brewery counters owing to uncertainties over a coronavirus vaccine.

"We expect the impact from Covid-19 to set aggregate core earnings back by -14.3% for 2020, based on our estimates.

"Most stocks under our coverage are expected to succumb to an earnings decline, with the sole exception of QL Resources, where we expect a modest growth of 5.4% yoy for 2020E," it said, while reiterating its neutral call on the consumer sector.

It added that QL Resources was its top pick in the sector.

Core sector earnings are expected to recovery about 13% in 2021 on the back of large-cap staples such as Nestle, PPB and QL Resources, said Affin Hwang.

However, a protracted recovery is expected for retailers and the tobacco and brewery sub-sectors owing to the lingering uncertainties in the absence of a vaccine.

The research house expects profitability to only return to 2019 levels in 2022.

Following the RM35bil Penjana stimulus, total economic stimulus amounts to RM295bil, or which about RM13bil is in the form of direct cash assistance.

Hence, Affin Hwang expects ample liquidity, lower funding costs from OPR cuts and increased appetite for stocks with a strong track record to remain supportive of valuations.

"After revisiting our valuation metrics, we upgrade Nestle (TP: RM134.00), Aeon (TP: RM1.05) and Heineken (TP: RM21.30) to HOLD (from Sell).

"Adding to that, we maintain our BUY ratings, but raise the target prices for both QL Resources (TP: RM10.30) and Ajinomoto (TP: RM17.00)," it said.

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