PETALING JAYA: Consumer sentiment will continue to remain cautious in the early part of the year for both value-for-money staples and high-value discretionary products.
However, a major deciding factor to recovery lies in a successful and effective Covid-19 vaccination programme which is expected to materialise as the year progresses.
Kenanga Research said the worst of the pandemic-hit year should be over soon but it believed consumer counters should be able to see a better year banking on anticipation of a successful containment of local Covid-19 cases.
Food and beverage (F&B) counters, especially those with higher exposure to in-home consumption like QL Resources Bhd, Nestle Bhd and Power Root Bhd should remain fairly resilient and would still fare better than others in the event of a prolonged fight against the pandemic.
Kenanga Research said “we stay selective on the sector as most counters’ valuations remain elevated.’’
Its favourite picks are Carlsberg Bhd as a recovery play premised on the recent Covid-19 vaccine developments, which could see a comeback of inelastic beer demand and generous dividend pay-out in the financial year.
“With the valuations for majority of our stocks remaining elevated, our sector preferred pick would be Power Root Bhd (target price RM2.25 a share) as we like the stock for being a resilient dividend play.It is backed by relatively inelastic coffee demand, attractive dividend yield of about 5%, as well as controlled margins from the group’s continuous business transformation plan to achieve greater cost efficiency by driving rationalisation exercises for its distributorships, sales force and factory operations.
Kenanga has a “neutral’ rating on the sector due to the lack of near-term re-rating catalysts.
It said the downside risks should be relatively limited as basic consumption remains buoyed by stimulus measures and most of the counters within its coverage possess the required balance sheet strength to tide over the ongoing crisis.
In an attempt to adapt to the changing consumer patterns, the majority of companies are ramping up their online presence – mostly through third party ecommerce platforms, aiming to capture additional market share from consumers favouring online shopping over brick-and-mortar stores.
It said basic consumption should still continue to be supported by the government’s stimulus packages of an unprecedented scale, a low interest rate environment, and a consumer-friendly Budget 2021 which should provide some additional financial reliefs.