THE consumer sector is expected to gradually recover in the second half of this year, said AmInvestment Bank, despite unfavourable near-term prospects caused by the Covid-19 pandemic and ensuing global economic downturn.
“We expect recovery to gradually kick in in 2H2020 before improving further in 2021F. Despite weak consumer sentiment and spending, the valuations of consumer companies have become attractive due to the selldown in consumer stocks at the start of the pandemic,” AmInvestment analyst Nafisah Azmi said in a note today.
Private consumption, she said, is estimated to grow slower at 4.2% (previous forecast of 6.9%) while unemployment is expected to go up to 6% (3.3% in 2019) in 2020F due to the Covid-19 pandemic impact.
“We think that consumer sentiment will be mostly subdued in 2H2020 although relatively better compared with during the movement control order (MCO) period. We are overweight on the consumer sector as we think that a recovery is underway following the end of the MCO,” Nafisah said.
Consumer demand would also improve as restaurants return to business, she added.
Power Root Bhd is Nafisah’s top pick for the sector with a buy call and target price of RM2.69.
“We believe that Power Root’s sales would remain stable despite the pandemic and global economic downturn, due to the resiliency of demand,” she said.
Power Root, according to Nafisah, displayed strong earnings recovery from streamlining of costs as well as better export sales growth from its planned expansion.
The company had a scarcity premium for exposure to the instant coffee segment as Power Root was the closest to a pure-play in the segment, she said.
Power Root also had a decent estimate dividend yield of 5.3-6.4% from FY20F to FY22F, Nafisah added. – July 9, 2020
