BURSA Malaysia’s consumer sector still offers attractive growth amid undemanding valuations with concerns over margin compression arising from high commodities prices and operating costs having been assuaged.
Overall demand and sentiment appear intact with sector earnings growth for 2023 remaining attractive at 17.1% year-on-year (yoy) which is in due part to an absence of the prosperity tax, according to UOB Kay Hean Research.
“Over the past two Malaysian general elections (GE) in 2013 and 2018, the host of consumer-related indicators such as retail sales, inflation and consumer sentiment appear to be better off vis-à-vis non-GE years,” observed analyst Philip Wong in a consumer sector update.
“Zooming into 2022, these indicators continue to be favourable despite rising inflationary pressures (albeit year-to-date inflation only averaging 2.8%) following momentum from re-opening of the economy.”
Moving forward, UOB Kay Hian Research said consumer sentiment remains “confident above the neutral level” with inflation being palatable while unemployment is elevated.
“With Malaysia’s 15th General Election due by Sept 2023 or earlier, conditions could remain conducive for consumers,” projected the research house which retained its “overweight” outlook on the sector.
“Sustained sentiment over the near term, undemanding valuations amid attractive growth and a defensive shelter underpin our bullish call on the sector.”
UOB Kay Hian Research further named its three top picks as Fraser & Neave Holdings Bhd (F&N), Mr DIY Group (M) Bhd and Heineken Malaysia Bhd.
“We particularly like F&N for its beaten down valuations and being a proxy to the continued re-opening of Thailand’s economy,” opined the research house.
“Meanwhile, Mr DIY’s sheer earnings growth suggests an additional potential for re-rating lends to its overall attractive proposition. Lastly, Heineken continues to offer decent earnings growth of 7.7% for 2023, decent valuations and an appealing dividend yield of 5.1%.” – Sept 14, 2022
