RHB Research has maintained a “neutral” call on the sector.
PETALING JAYA: The outlook for the consumer sector is expected to remain challenging amid constrained discretionary spending, while steady demand is anticipated for staple-based products, says RHB Research.
Following its recent visit to three small-cap companies namely SDS Group Bhd
, Farm Price Holdings Bhd and Teo Seng Capital Bhd in Johor, the research house had gathered some insights.
“The observations were largely in line with our sector base case assumption of which staple-oriented firms like Farm Price and Teo Seng continue to see steady demand while SDS’ retail operations are relatively challenging.”
Hence, it has maintained a “neutral” call on the sector with top picks namely MR DIY Group (M) Bhd, Guan Chong Bhd, Farm Fresh Bhd and Focus Point Holdings Bhd.
On SDS, which is a manufacturer and retailer of bakery products, RHB Research said the company planned to open four to six outlets annually and differentiates itself by selling unique product offerings and having active promotional campaigns.
Establishing standalone bakery outlets requires a capital expenditure of RM600,000 to RM700,000, while hybrid bakery-cafeteria formats cost RM1.2mil to RM1.3mil with a payback period of three years, it added.
Retail stock keeping units (SKUs) number are around 40, with the last average selling price (ASP) revision made in 2022 (up 10 sen to 20 sen).
On the wholesale side, SDS’ strategy included expanding distribution coverage via its own and third-party networks, leveraging on national and regional retail chains and introducing new SKUs to deepen market reach.
SDS is also currently assessing the impact of the recent sales and service tax expansion, particularly on rental costs. About 30% of SDS’ outlets are located in malls, said RHB Research.
Meanwhile, Farm Price is constructing a new centralised distribution centre in Senai, which is on track for completion by end-2025, and will double its processing and distribution capacities.
The wholesale distributor of fresh vegetables, groceries and food and beverage products is backed by over 20 years of experience and a portfolio of more than 1,000 SKUs.
RHB Research noted Farm Price’s management expected the additional capacity to be absorbed by customers from its recent acquisition of The Fresh Story in Kota Kinabalu, Sabah.
This will expand the group’s presence in the fruit segment in Sabah and Sarawak, and support its growing market in Singapore.
Overall, higher volumes should enhance cost efficiency through economies of scale, the research house noted.
On Teo Seng, RHB Research said the local table egg ASP had normalised post-Ramadan, adding that the shift to a free market pricing mechanism by August could benefit efficient players such as Teo Seng.
The group is one of Malaysia’s largest egg producers with over 13% domestic market share and growing presence in the downstream processed eggs segment.
The company processes about five million eggs daily and has ample grading capacity to scale further.
Direct sales accounted for more than 60%, enhancing margins and expanding reach, especially through 99 Speedmart Retail Holdings Bhd’s network of retail outlets.
Teo Seng is also scaling up hard-boiled and pasteurised egg production, targeting export opportunities and doubling downstream sales by 2025, RHB Research noted.
