MIDF Research also anticipates domestic retail spending on essential and affordable products will remain steady.
PETALING JAYA: MIDF Research foresees continuous currency pressure on companies that import raw materials, predominantly food and beverage (F&B) and livestock producers.
This includes QL Resources Bhd
, Fraser & Neave Holdings Bhd, Leong Hup International Bhd, Hup Seng Industries Bhd, Spritzer Bhd and Nestle (M) Bhd, which are under the research house’s coverage.
MIDF Research said the weakeness of the ringgit against the US dollar could further raise raw-material costs for producers of staple goods, but it will also certainly benefit exporters.
Raw materials constitute about 70%-85% of total production costs for companies under its coverage and are often priced in US dollars.
While producers of staple goods may pass on higher currency costs to customers, MIDF Research said profit normalisation may lag.
The intense competition in the industry also caps price adjustments to retain customers, it added.
On the other hand, US-dependent exporters such as furniture maker Rhong Khen International Bhd could benefit from the stronger US dollar, potentially leading to higher revenues.
MIDF Research also anticipates domestic retail spending on essential and affordable products will remain steady, supported by various government cash assistance initiatives and the ability for people to now withdraw from Account 3 of their Employees Provident Fund savings.
Apart from this, the upward revision of salaries for civil servants in December 2024, promising job market, and return of tourist arrivals could also boost that spending.
This bodes well for grocery retailers such as Aeon Co (M) Bhd and FamilyMart convenience stores under QL Resources.
Meanwhile, other consumer-staple producers, such as F&B and poultry companies, are also well-positioned to benefit from solid domestic spending.
The research house expects raw-material costs for biscuit, dairy and livestock-related companies to stay low due to reduced commodity prices.
Last month, MIDF Research said it observed a decrease in prices for seven out of the eight commodities under its coverage on a sequential monthly basis.
Wheat prices, however, rebounded during the same period, which was attributed to heightened geopolitical tensions and concerns over adverse weather in producing countries.
However, wheat prices, in general, remained well below its two-year peak level.
The research house noted that prices for cocoa and arabica and robusta coffee beans would likely remain elevated, squeezing margins for chocolate and cocoa-related manufacturers.
Despite expectations of easing inflationary pressures, MIDF Research is cautious about the uncertainty surrounding the implementation of fuel-subsidy rationalisation and the high-value goods tax.
The research house, which maintained a “neutral” outlook on the consumer sector, continues to favour Fraser & Neave and QL Resources as its top picks.
It noted eight out of the 10 consumer companies under its coverage reported first quarter 2024 earnings within its expectations, with two retailers, AEON Co and Padini Holdings Bhd’s results exceeding expectations.
