CGS-CIMB Research said it sees opportunities in the retail sector. It likes Bonia Corp Bhd with a target price (TP) of RM3, MR DIY Group (M) Bhd at a TP of RM2.40 and Senheng New Retail Bhd with a TP of 80 sen.
KUALA LUMPUR: The retail sector’s sales demand for discretionary companies in the second half of 2022 could be dampened by intensifying competition and a slow recovery in foreign tourist arrivals, according to CGS-CIMB Research.
In addition, elevated raw material prices and rising operating costs could put further cost pressures on retailers, which could erode margins.
“As such, Retail Group Malaysia (RGM) noticed more closures of retail outlets in Malaysia since early 2022,” said the research unit in a report after a recent briefing by RGM managing director Tan Hai Hsin on the retail consumer outlook.
In the second half 2022, RGM expects demand for essential goods and services to be stable, while discretionary spending could be curtailed amid weaker consumer purchasing power due to rising inflationary pressures, interest rate hikes and subsidy cuts.
Meanwhile, the labour shortage has hampered store expansion plans and limited operating hours.
In 2022, RGM expects Malaysia’s retail industry to post a 13.1% year-on-year growth, driven by the easing of lockdown measures and higher consumer footfall.
RGM projects a higher year-on-year growth rate in the first half, boosted by Malaysia’s retail sector in the second quarter at 25.7% growth year-on-year.
This is particularly so for certain sub-sectors owing to higher sales during Hari Raya amid the lifting of movement restrictions. RGM expects the retail sector to grow at a slower pace in the second half of 2022, but said it will remain in positive territory.
According to RGM, the projected lower retail growth rate in the second half is primarily due to expectations of lower consumer discretionary spending power on high inflation, a rising interest rate hike cycle, and challenges facing retailers and discretionary companies.
However, CGS-CIMB Research said it sees opportunities in the retail sector. It likes Bonia Corp Bhd
with a target price (TP) of RM3, MR DIY Group (M) Bhd at a TP of RM2.40 and Senheng New Retail Bhd with a TP of 80 sen.
The research unit, which has maintained a “neutral” call on the sector also noted that “there are pockets of opportunity in the discretionary space”.
“Considering the forecast weaker consumer spending in the second half, we believe that dimmer earnings prospects have been largely priced in,” said CGS-CIMB Research.
Key upside risks include higher-than-expected retail spending and lower-than-expected operating costs, while key downside risks include lacklustre consumer sentiment and a sharp rise in operating costs.
Meanwhile, RGM has seen several key market trends in Malaysia’s retail industry, including larger size store formats for convenience stores and a rise in new entrants among “value retailers” and foreign retailers.
RGM also said eCommerce is unlikely to replace physical shopping. The online shopping activities have declined by an estimated 70% to 80% since early 2022, but adoption of an omni channel strategy is a key differentiating factor.
“Retail winners are those with a strong business model, operations and customer service. There is a rise in thematic-based retailing, particularly for food and beverage, given the prominence of social media platforms as effective promotional tools,” said Tan.
Bonia shares closed six sen lower at RM2.08 yesterday, valuing it at RM420mil.
MR DIY closed two sen up at RM2.14, which gives it a market value of RM19.98bil.
Senheng shares closed one sen lower at 60 sen, giving the company a market capitalisation of RM907mil.
