Filepic: Shoppers at the Padini outlet in Paradigm Mall, Petaling Jaya
PETALING JAYA: Kenanga Research maintained its “overweight” stance on the consumer sector despite some headwinds for the food and beverage (F&B) producers in the form of narrowing margins.
“We expect top line for the remainder of 2023 to be resilient supported by higher footfall due to seasonality, strong spending power of its primary target customers (M40 group), given their healthy household balance sheet, expansion and refurbishment of stores, and gradual return of international tourists.
“However, we are cautious on the margins as players mostly from the F&B segment are still exposed to prevailing high operating costs, coming from inputs and wages,” the research firm said in a note.
Kenanga Research said: “Retail players are likely to maintains sales volume as their customer base is skewed towards the M40 group, whose spending power is supported by a healthy household balance sheets.
“The F&B producers on the other hands are likely to maintain their robust sales but will experience contracting margins as they have little room to hike prices given their predominantly B40 customer base, which has been harder hit by inflation.”
For the retail sector, Kenanga’s top picks include Aeon Co
(M) Bhd, which will benefit from the return of in-person shopping as opposed to online, a resurgence of shopping in malls as opposed to neighbourhood grocers and the return of the office crowd, which were previously working from home.
It is also bullish over AEON’s M40 customer base and its digital transformation, especially the introduction of self-checkout for customers that will result in cost savings and partially mitigate the labour shortage issue.
The research firm also like Padini Bhd for being a beneficiary of M40 customers replenishing their wardrobes and its strong net cash position enabling it to purchase inventory ahead of prices hikes and potential supply disruptions.
Kenanga Research’ third top sector pick is QL Resources Bhd for its strong export demand for its marine products as exports have normalised post-pandemic.
It is also positive on the group’s strong Family Mart convenience store franchise and strong growth potential of its poultry business in Indonesia and Vietnam as living standards improve.
Meanwhile, Kenanga Research is projecting a bumper second half to 2023 for the consumer sector with the onset of major festivities and school holidays while consumer spending continues to normalise.
“Anecdotal observations suggested strong shopping footfalls for the Chinese New Year celebrations and the same scene is likely to be repeated ahead of Aidilfitri next month,” added the research firm.
For the fourth quarter of last year, the research firm said the consumer sector’s results largely met its forecasts with 59% of the companies under its coverage coming within expectations.
It said the large number of in-line results for the fourth quarter last year implied better management and operational efficiency keeping at bay the upward cost pressures.
