PETALING JAYA: Consumer sentiment has remained subdued, given heightened inflationary pressures with the upcoming implementation of subsidy rationalisation for petrol to weigh on the sector moving forward.
According to RHB Research, inflationary concerns have resulted in downtrading behaviour as price sensitive consumers constantly sought or hunted for value.
The research house added that other key concerns of corporations include foreign exchange risks, commodity market movements and geopolitical risks.
RHB Research has maintained a “neutral” stance on the consumer sector as the financial results for the first quarter of 2024 (1Q24) were within expectations.
“The 1Q24 sector results met expectations thanks to robust topline growth and improving profit margin.
“The introduction of the Employees Provident Fund’s (EPF) Account 3 and pay raises for civil servants are effective measures to support consumer spending.
“In addition, the pickup in tourist arrivals should benefit the consumer retail players. On the flip side, the uncertainty on inflationary impact of subsidy rationalisation will remain a key concern for the sector,” it explained.
The research house added that within its coverage, eight companies reported earnings within expectations, four surprised on the upside and one disappointed.
It said Padini Holdings Bhd
’s results were a disappointment as it was dragged by aggressive price discounts and rise in staff costs.“With 1Q24 capturing the festive demand of the Lunar New Year and Aidilfitri, all companies under our coverage, except Nestle (M) Bhd, recorded robust year-on-year topline growth.
“Quarter-on-quarter momentum was also largely positive, particularly for the consumer discretionary players, lifted by the favourable seasonality.
“Meanwhile, there was a healthy gross profit margin expansion for most of the consumer staples companies including Farm Fresh Bhd, Nestle and QL Resources Bhd, largely driven by easing input costs,” it added.
RHB Research’s top picks are MR DIY Group (M) Bhd, Heineken Malaysia Bhd, Focus Point Holdings Bhd, DXN Holdings Bhd and MyNews Holdings Bhd.
“MR DIY is a prime beneficiary to capitalise on the EPF’s flexible withdrawal scheme and salary hikes of civil servants, given its entrenched network of stores and value-for-money product offerings.
“We highlight Focus Point for its industry-leading growth, underpinned by effective marketing initiatives and rising myopic population. DXN’s valuation is undemanding considering the steady earnings growth whilst dividend yield is attractive at circa 6%.“We also like MyNews as we believe the robust growth of the MyNews brand and anticipated turnaround of the consumer unit brand could trigger a valuation re-rating,” the research house added.
