Cautious recovery in consumer sentiment

KUALA LUMPUR: Consumer sentiment is likely to remain cautious for the remainder of the year due to the lingering impact of the Covid-19 outbreak, says Kenanga Investment Bank Research.

While private consumption continues to be underpinned by government stimulus packages, a low interest rate environment and a possibly consumer-friendly Budget 2021, the economy could still take quarters to return to pre-pandemic levels.

"We note that the major risk to recovery lies in the event of a second country-wide lockdown," it said.

The research house expects F&B counters to continue to recover for the rest of the year on the back of the reopening of the majority of the HORECA channels, normalising retail footfall at groceries stores as well as the revival of the domestic tourism scene.

However, retailers are faced with a more cautious recovery as consumers will be more cautious in spending and are expected to lean towards essential items such as grocery and household products.

"In the event of further global coronavirus outbreak and the domestic political turmoil taking a longer time to resolve, it would further affect the retail consumption pattern in Malaysia drastically.

"This will lead to Malaysia’s retail industry suffering from a contraction for the entire year," said Kenanga.

The last time the Malaysian retail industry recorded a negative growth rate was during the 1997-98 Asian Financial Crisis, when the market size of the Malaysian retail industry contracted 20% in 1998.

The research house reiterated its "neutral" rating on the consumer sector due to the lack of near-term catalysts.

Downside risks are expected to be relatively limited as basic consumption remains buoyed by stimulus packages and most of the the counters under Kenanga's coverage have the required balance sheet strength to tide over the ongoing crisis.

Kenanga's preferred pick in the F&B segment is Power Root while it favours Aeon in the retailer segment.

It also upgraded the sin sub-sector to "overweight" with "outperform" calls on Heineken Malaysia and Carlsberg given their recent share price weakness.

"We note that the operating landscape for the breweries still remains challenged by uncertainties brought by the global pandemic (i.e. continued closure of a number of the on-trade channels, lower capacity and operating hours for eateries), as well as stricter enforcements for drunk drivers of late following some fatal accidents linked to drunk driving.

"That being said, this could be a good time to build positions on these defensive names which have a proven (pre-Covid) track record of inelastic beer demand, steady earnings growth and generous dividend payment," it said.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 18
Cxense type: free
User access status: 3

Did you find this article insightful?


Next In Business News

Affin Bank weighs IPO of asset management unit
AWC-Techkem JV bags RM21mil sub-contract for treatment plant in Melaka
Proton car sales up 18% in November
Sources: China’s Ant considers Paytm stake sale amid tensions with India
Bursa presses pause button after sharp rebound
Hong Kong shares close lower on tech, healthcare retreat
Grab, Gojek close in on terms for merger
Future of finance is in wealth management, retail trading
China shares end flat as healthcare losses offset gains in property stocks
Biden will not immediately remove Phase 1 trade deal with China

Stories You'll Enjoy