Subdued consumer sentiment likely to persist

PETALING JAYA: RHB Research remains neutral towards the consumer sector as it expects subdued consumer sentiment to persist.

Regarding the sector’s outlook, the research house said it expects consumer spending to remain dull, as income levels require time to adjust with the rising cost of living.

However, RHB Research added, “The healthy employment market and continuous government aid to the lower-income group should support overall consumer spending and demand for staple necessities.”

RHB Research also anticipates the robust tourism recovery will serve as a boon to the consumer sector.

It said the influx of tourist arrivals in the country should benefit the breweries and consumer retail companies.

Additionally, the introduction of Account 3 by the Employees Provident Fund that allows for the flexibility in withdrawal could boost discretionary spending among the locals, said the research house.

“Still, we believe the sector’s sentiment will stay muted until more clarity can emerge on the implementation of various subsidy rationalisation measures and new consumption taxes for investors to gauge the potential inflationary impact.

“Corporate results for the fourth quarter of 2023 missed expectations on cautious consumer spending but we see gross profit margin recovery aiding several food producers, thanks to easing commodity prices,” it said.

RHB Research believes the current sector valuation may have largely priced in the downside risks, despite that new consumption taxes and the rationalisation of subsidies could have an inflationary impact and cause dull consumer spending.

Furthermore, the research firm’s base case does not assume that the rationalisation of subsidies will significantly reduce consumer spending.

It maintained a “neutral” call on consumer stocks. Its top picks for the sector includes MR DIY Group (M) Bhd, Guan Chong Bhd, Heineken Malaysia Bhd, DXN Holdings Bhd and Focus Point Holdings Bhd.

“We continue to like MR DIY for its strong fundamentals to deliver growth amid the challenging environment.

“We highlight Guan Chong as strong demand has driven up the average selling price and that should also limit the marked-to-market hedging loss, going forward.”

In addition, RHB Research expects Heineken Malaysia to benefit from rising tourist arrivals. “Heineken Malaysia’s valuation is undemanding with a decent dividend yield,” it said.

The research house added that DXN is trading at a modest valuation despite delivering consistent earnings and dividends, thanks to its effective business model.

“Focus Point should continue to deliver robust growth, supported by the rising myopic population. We look forward to a sustainable turnaround of its food and beverage business,” it said.

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