Tradeview Cpital's Ng opines that big-ticket items may continue to face challenges in the current market.
PETALING JAYA: Consumer stocks, particularly those selling small-ticket items, are poised to benefit from the government’s initiatives to boost consumption.
The sector at large is still considered a laggard.
The Bursa Malaysia consumer products and services index has been on an upward trajectory since late 2023, before seeing a decline of 4% over the past month after peaking in May.
On the other hand, the FBM KLCI and FBM Small Cap Index had seen gains of 16% and 31%, respectively, in the past one year.
Tradeview Capital chief executive officer and founder Ng Zhu Hann said consumption boosters like the Employees Provident Fund (EPF) Account 3 and civil servants’ pay hike are tailwinds for counters like MR DIY Group (M) Bhd
and Aeon Co (M) Bhd.
“The EPF Account 3 allows for withdrawals of up to RM250 per day, which will support the purchase of small-ticket items. However, it does not help with overall large consumer spending.
“The civil servant salary hike is also another catalyst for small-ticket discretionary spending, as they make up the bulk of the workforce,” he told StarBiz.
Ng said it will take some time for corporate earnings in the sector to improve and consumer stocks may likely remain laggards until the next earnings season.
“I believe this process will drag on for another three to six months. It is a good time to buy consumer stocks provided investors are willing to buy and hold. For those looking to buy, trade and exit quickly, it is going to be difficult as the timing of the sector’s recovery is uncertain.
“If there is no recovery in the following earnings season, investors might need to wait for another earnings season, which will likely coincide with the festive season,” he said.
Going forward, Ng opines that big-ticket items may continue to face challenges in the current market.
“While the economy is improving, people are tightening their belts due to inflationary costs. As a result, consumers are cutting back on certain expenses. Therefore, I do not think big-ticket items are going to see any improvement in the near term but there are catalysts for small-ticket items,” he said.
Meanwhile, Hong Leong Investment Bank (HLIB) Research said possible margin expansion from moderation in raw material prices, consumption boosters with the EPF Account 3 and civil servants’ pay hike, along with encouraging macro environment with stable employment levels, are expected to boost the sector.
The research house upgraded its call for the sector from “neutral” to “overweight” with top picks being AEON (target price or TP: RM1.82), Focus Point Holdings Bhd (TP: RM1.14), and QL Resources Bhd (TP: RM8.18).
Rakuten Trade head of equity sales Vincent Lau said subsidy rationalisation initiatives and inflation have dampened sentiment in the consumer sector leading to the decline seen in the index.
“However, factors such as civil servant pay hike and the EPF Account 3 are expected to support consumer spending. This will offset some of the effects of inflationary increase in the prices of goods, food and diesel,” he said.
Lau said laggards like CAB Cakaran Corp Bhd, QL Resources, Spritzer Bhd and AEON are expected to do fine.
“Another factor that not many people talk about is the initial public offering (IPO) market, which has done relatively well. A strong IPO market, coupled with the expected robust performance in the tech sector, typically translates to improved sentiment and potential earnings for consumer stocks.
“When people profit from the stock market, there’s a multiplier effect where increased wealth often leads to higher consumer spending, further benefitting consumer-focused companies.
“The outlook appears optimistic, especially with potential flows from the EPF Account 3 into the market, reflecting investor confidence and interest in equity investments,” he said.
