"We believe consumer sentiment is likely to remain muted ahead as we ease into the new norm, with spending priority being placed on value-for-money staples products instead of high-value discretionary goods," it added, while reiterating its "neutral" rating on the sector.
According to Kenanga, the current valuations of F&B stocks have largely priced in the post-lockdown recovery from the second half onwards.
Investors are looking beyond the expectedly weak second quarter results in anticipation of a post-pandemic recovery, which has led to the KL Consumer Index recovering about 21% from its March bottom, it said.
"Noting that the largest risk to recovery lies in the possibility for a second wave of
infections, we believe the F&B counters, especially those with higher exposure to in-home consumption (ie, QL and PWROOT) should remain fairly resilient and would still fare better than the others in the event of a second wave," it added.
In the retail segment, consumer are expected to be cautious in their spending and lean towards essential items such as grocery and household products.
Kenanga cautioned that a further global coronavirus outbreak and domestic political turmoil taking more time to resolve would drastically affect the retail consumption pattern in Malaysia.
"This will lead to Malaysia retail industry suffering from negative growth rate for the entire
"The last time when the Malaysian retail industry recorded a negative growth rate was during the 1997-98 Asian Financial Crisis when in 1998, the market size of the Malaysian retail industry contracted by 20%," it said.
Kenanga has an "outperform" recommendation on Power Root, which is its preferred sector pick,, with a target price of RM2.45.
Among retailers, it upgraded Aeon to "market perform" with an unchanged target price of RM1.
Meanwhile, the research house also upgraded Heineken Malaysia and British American Tobacco Malaysia to "market perform" with target prices of RM20.85 and RM10.05 respectively as it believes the negatives affecting these counters have been priced in.
It maintained its "underperform" call on Carlsberg with a target price of RM21 as valuations appear elevated in view of its upcoming earnings and dividend weakness.
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