KUALA LUMPUR: AmInvestment Bank Bhd has maintained an overweight rating on the consumer sector, backed by its projection of a 6.9% increase in private consumption and healthy consumer spending.
In a research note, it said the rating is supported by a steady labour market and stable inflation, despite the low consumer sentiment which stood at 84 points in the third quarter of financial year 2019 as measured by the Malaysian Institute of Economic Research.
The research firm has set a buy call for Power Root Bhd with a fair value (FV) of RM2.82, Guan Chong Bhd (FV: RM3.49), myNEWS Holdings Bhd (FV: RM1.66), Berjaya Food Bhd (BFood) (FV RM1.57) and Leong Hup International Bhd (LHI) (FV: RM1.04).
“We anticipate the growth for consumer staples will be stable and companies like Power Root, LHI, myNEWS and Nestle will be the beneficiaries of the stable growth.
“On the other hand, consumer discretion will be more susceptible to weak consumer sentiment and increased competition with substitutes becoming more readily available in the market.
“Companies that will be affected under our coverage are BFood and Padini, which has a hold rating with FV of RM3.75,” it said.
It expected earnings growth for Power Root, Guan Chong, LHI and Padini to be driven by their overseas expansion which offers diversification in their earnings base.
Power Root plans to boost its export sales in China, the Middle East and North African regions; Guan Chong plans to construct a new cocoa bean grinding plant in Ivory Coast; and LHI plans to expand its operations in Vietnam, the Philippines and Myanmar to tap into the growing markets while diversifying its earnings base.
Meanwhile, Padini is planning to expand its Cambodian operations, although at a much less aggressive pace.
However, AmInvestment Bank said that it may downgrade its call on the consumer sector to neutral if the ringgit goes down sharply against the US dollar, or if there is sluggish improvement in economic fundamentals and sharp decline in global economic conditions. – Dec 19, 2019, Bernama
