QL Resources' Family Mart convenience store franchise is appealing, says Kenanga Research.
PETALING JAYA: Consumer spending is expected to stay resilient in the absence of any immediate plan by the government to rationalise subsidies or reintroduce the goods and services tax (GST).
Retail sales are expected to sustain throughout 2023 following a 33.3% year-on-year (y-o-y) increase in 2022 with Retail Group Malaysia projecting local retail sales to grow by 3.5% in 2023.
This will benefit companies catering to the consumer sector, said Kenanga Research in its latest report.
Its top picks for the consumer sector include AEON (Co) M Bhd, Padini Holdings Bhd
and QL Resources Bhd.
The brokerage said “AEON will benefit from the return of shoppers post the pandemic as its customer base is skewed towards the M40 group whose spending power is less impacted by high inflation.
“AEON’s digital transformation journey with the introduction of self-checkout for customers will also result in cost savings and reduced labour dependence.”
Padini meanwhile is a beneficiary of consumers replenishing their wardrobes for their return to offices and schools, and social activities.
As for QL Resources, the brokerage said sustained strong export demand for its marine products as exports have normalised post pandemic with the reopening of China.
The group’s strong Family Mart convenience store franchise is also appealing.
Kenanga Research said there is also growth potential in the group’s poultry business in the region.
“This is given rising affluence and the return of market-driven prices for chicken and eggs locally, with the potential lifting of ceiling prices by second quarter of 2023,” it added.
Kenanga Research noted the relatively stable economy and a healthy job market, coupled with a strong household balance sheet of the M40 group is helping the spending. Also, the return of international tourists, especially those from China, will contribute to footfall in malls and stores, benefitting fashion retailers and food and beverage restaurants.
However, Malaysian Institute of Economic Research’s Consumer Sentiment Index pointed out that spending plans were on a slight decline as consumers continue to feel the pinch of higher interest rates and a softer macroeconomic outlook.
But the pause in rate hike by Bank Negara might see the return of spending on big-ticket items, it said.
Kenanga Research said commodity prices have not fallen back to the pre-pandemic levels. Consumer staple producers under its coverage were concerned over a renewed escalation of the Russian-Ukrainian conflict.
“This could lead to another round of food commodity supply-chain disruptions though with softer food commodity prices expected,” it added.
Milk prices have also been on a downward trend and poised to return to the pre-pandemic levels by early 2024.
This bodes well for Dutch Lady Milk Industries Bhd and Nestle (M) Bhd.
The outlook for tobacco producers and brewers is looking cloudier, said the brokerage. Most companies under its coverage foresee 2023 to be challenging and the recently announced regulations on tobacco and vapour products seem mixed for British American Tobacco (M) Bhd.
