CONSUMER confidence appears to be holding up despite the recent Omicron wave and is poised to improve further as Malaysia transitions into an endemic phase.
In fact, UOB Kay Hian Research has described the consumer sector offering a defensive shelter amid market uncertainty.
In a potential lead-up to the general election (GE) in Malaysia, the research house looked back at the past five GEs in Malaysia and the corresponding share price performance of consumer companies relative to the FBM KLCI index over a three-month period before and after the GE.
“All consumer sub-sectors largely outperformed the FBM KLCI (with the exception of British American Tobacco (M) Bhd [BAT Malaysia] at -0.3%), in particular the retail sub-sector (+14.7%),” observed analyst Philip Wong in a consumer sector update.
“Notably, the brewery sub-sector also outperformed by 5.2%, dispelling the notion that anti-alcohol political messaging weighs on the sub-sector.”
In contrast, subsequent to the past five GEs, the performance of the consumer sector was mixed. “It is possible that the flight to safety reverses in an increased risk-on environment following a GE,” the research house reckoned.
“Maintain ‘overweight’ as valuations are undemanding amid multiple catalysts. (Our) top picks include BAT Malaysia, Heineken Malaysia Bhd and Mr DIY Group (M) Bhd.”
The research house further expects valuations to improve gradually alongside visibility for earnings delivery over 2022.
“Gradual re-opening of the economy and borders should gradually restore consumer confidence and sentiment,” opined UOB Kay Hian Research.
“Further tangible and visible easing of pandemic-related restrictions such as entertainment outlets resuming operations, large-scale social events being held and quarantine of tourist arrivals being scaled back could provide further aid to sentiment.”
All-in-all, the research house said its top pick for the sector is BAT Malaysia for the legalisation of nicotine vaping. After all, Malaysia’s only listed cigarette manufacturer also offers an appealing and sustainable dividend yield of 7.6%-9.4% for 2022-2024.
“Meanwhile, it trades at an undemanding valuation close to -2SD (standard deviation) to its five-year historical mean,” suggested UOB Kay Hian Research.
“We also like Heineken as a re-opening beneficiary and attractive valuations and Mr DIY for its (i) aggressive store expansion; (ii) earnings-fuelled growth; (iii) sticky demand for its non-discretionary products; and (iv) operational excellence.” – April 7, 2022
