Consumer segment to stay resilient next year


MIDF Research said consumers are becoming more price-sensitive and restrained in spending on discretionary and major durable items.

PETALING JAYA: Spending in food and beverage (F&B) outlets as well as non-specialised stores is expected to remain resilient in 2024 supported by various factors, say analysts.

MIDF Research said in a recent report that it expects the consumer sector in the country to remain resilient due to the steady job market, sustained demand for essential daily items, continuous robust out-of-home consumption, and benefits from initiatives introduced in Budget 2024 to boost consumer spending.

The research firm also noted the sector could get a boost from higher tourist arrivals thanks to the visa-free entry for Chinese and Indian citizens from Dec 1, 2023 onwards.

However, MIDF Research said consumers are becoming more price-sensitive and restrained in spending on discretionary and major durable items.

“Hence, we foresee softer demand for discretionary items like hard goods (such as appliances or sports equipment) and soft goods (such as clothing and bedding) for Aeon Co (M) Bhd, which could offset the positive trend in its food segment.

“We expect demand for products at QL Resources Bhd’s Family Mart convenience outlets may be slightly affected by weaker consumer sentiment,” MIDF Research added.

Nevertheless, the research outfit said the return of leisure and business tourism activities, along with the continuiung store openings in residential areas, could offset the downturn.

MIDF Research said Padini Holdings Bhd is poised to leverage on the cash aid to the B40 income group and civil servants under Budget 2024, and the topline of its products is expected to remain resilient due to its competitively priced products.

The research house anticipates a slightly better outlook for poultry players driven by the expectation of lower chicken feed input costs, coupled with the improving operating environment in Malaysia and Indonesia.

It remained cautious about the volatility in prices of global commodities such as sugar, coffee, and cocoa, which will likely persist in the near term.

The research house added this could more than outweigh the drop in other key commodities such as wheat and crude palm oil, thus exerting inflationary pressure on the margins of F&B manufacturers in the near term.

“We expect sluggish demand for consumer discretionary spending in 2024, primarily due to growing inflationary pressures, fears of a future global recession, persistently high interest rates in the United States, and normalised overnight policy rate in Malaysia.

“These factors are expected to erode household discretionary expenditure, leading to tighter spending on durable items. Hence, we downgrade our consumer sector recommendation to ‘neutral’ from ‘positive’ due to the cautious outlook,” the research house said.

Its top picks are consumer staples that exhibit resilient demand, such as QL Resources with a “buy” rating at a target price (TP) of RM6.25 a share and Fraser & Neave Holdings Bhd with a “buy” rating and a TP of RM33.50.

MIDF Research also likes QL Resources’ move to explore new markets by providing hot in-flight food to MAS Awana, which provides in-flight catering services to Malaysia Airlines.

Meanwhile, F&N is likely to benefit from the rising demand for ready-to-drink beverages, driven by increasing tourist traffic.

“We also appreciate F&N’s initiative to continue growing via recently integrated Sri Nona, followed by Cocoaland and its upcoming integrated dairy farm that could ensure its self-sufficiency in dairy products and potentially expand its revenue base,” according to the research house.

It pointed out that QL Resources and F&N have attractive valuations. QL Resources has a price earnings ratio (PER) of 31.4 times for 2024, while F&N’s PER is 17.2 times.

These figures are lower than their three-year historical average PERs of 46 times and 22 times, respectively, as well as the consumer staple sector’s three-year forward average PER of 38 times.

“This suggests that the stocks might be undervalued, making them compelling investments in the consumer-staple sector, given their solid fundamentals and aggressive pursuit of revenue growth avenues,” MIDF Research added.

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