PETALING JAYA: Like other sectors facing the brunt of the ravaging Covid-19, the consumer products sector is also one that has been impacted.
Analysts expect to see recovery in the sector by next year with the Covid-19 vaccine hitting the market.
Going by reports, the vaccine could be out in the first or second quarter of next year.
They opined that the added boost to the sector would be the government’s various stimulus packages, the low interest rate environment and a stronger economic growth that would spur consumer spending. Kenanga Investment Bank Research said consumer sentiment is likely to remain cautious for the remainder of the year due to the lingering impact of the Covid-19 outbreak.
It noted that while private consumption continues to be determined by the government’s stimulus packages, the low interest rate environment and a possible consumer-friendly Budget 2021, the economy could still take several quarters to return to pre-pandemic levels.
“We note that the major risk to recovery lies in a second country-wide lockdown, ” it said. The research house expects food and beverage (F&B) counters to continue to recover for the rest of the year with the reopening of most channels, normalising retail footfall at groceries stores, as well as the revival of the domestic tourism scene.
RHB Research analyst Soong Wei Siang said the near-term outlook is challenging, given the uncertainties arising from the development of the pandemic locally.
“Looking further ahead, our in-house view assumes green shoots of recovery emerging in 2021 as vaccines become available, propelling consumption growth of 11.4%. This will be further supported by a low interest rate environment and stimulus packages extended by the government.
“Valuation wise, large-cap staple food companies continue to trade at premium valuations, given the scarcity premium on the back of earnings defensiveness. Meanwhile, current valuations of small- to mid-cap stocks are more reasonable as earnings weakness is being priced in, ” he said.
He said the second-quarter (Q2) consumer sentiment has rebounded sharply to 90.1 points from the all-time low of 51.1 points in Q1 according to the Malaysian Institute Of Economic Research(MIER) survey.
RHB in a note believes consumer anxiety and panic have subsided largely owing to the effective containment of the Covid-19 outbreak in Malaysia.
Meanwhile, stimulus and assistance packages extended by the government in order to support the employment market and sustain consumer spending should also boost confidence.
Looking ahead, Soong said Q3 should reflect a healthy recovery on a sequential basis, underpinned by the broader reopening of the economy and consumer acclimatisation to the various SOPs and new normal.
A couple of long weekend holidays in Q3 should be able to stimulate spending as consumers opt for domestic holidays, with international travel remaining closed, RHB said.
The research house expects retailers to be aggressive with marketing and promotional activities to attract footfall in order to capture consumer spending.
RHB Research is maintaining its “neutral” stance on the consumer products sector. The research house said large-cap staple food stocks continue trading at premium valuations, given their scarcity premium on earnings defensiveness.
Small- to mid-cap stock valuations are more reasonable as earnings weaknesses have been priced in, it said.
For sector picks, RHB said it, among others, likes Power Root Bhd in anticipation of a sustained earnings recovery momentum, driven by business rationalisation efforts as well as a further valuation re-rating potential.
It also liked Guan Chong Bhd as a proxy with undemanding valuation in the sector. New ventures into the Ivory Coast and Europe should be future earnings drivers, whilst demand for cocoa products is relatively less affected by the pandemic.
RHB also favours Heineken Malaysia in the brewery space for its market leadership and sustainable growth, supported by sustained clampdown efforts by the authorities and new product launches.
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