Sluggish growth, compressed margins a theme for consumers in 2017
KUCHING: Companies in the consumer sector are still plagued by sluggish earnings growth and margins compression, with analysts pegging this to persist in the year ahead.
Although more than six quarters have passed since the Goods and Services Tax (GST) was implemented, AllianceDBS Research Sdn Bhd (AllianceDBS Research) noted that its impact is gradually fading with a recovery in consumer spending and visits to shopping malls – but the recovery has been slow, uneven and fragile.
“We believe that the slowerthanexpected recovery in consumer spending was dragged by slowing economic growth momentum, concerns over job prospects, ringgit volatility, high household debt, and higher cost of living contributed partly by subsidies removal by the government,” it detailled in a note yesterday.
“The recently concluded third quarter ( 3Q) results did not excite, with consumer stocks under our coverage reporting more misses while none exceeded expectations.”
AllianceDBS Research said the disappointing earnings were mainly driven by higher-thanexpected operating cost as some firms were dragged by a higher minimum wage implemented since July, and more expensive imported inventories due to a weak ringgit.
“The underwhelming 3Q results have reaffirmed our cautious stance on the sector, where earnings prospects going forward are expected to remain weak due to continued slow recovery in consumer spending, weakening ringgit (that will inflate the cost of imported materials) and higher minimum wage effective from July 2016 (to add on to the cost pressure.)
FoundPac is expected to have a market capitalisation of approximately RM 199.8 million upon listing based on the IPO Price of RM0.54.
FoundPac established its operations in 2005, and together with its subsidiary companies are principally involved in the design, development, manufacture, marketing and sale of precision engineering parts namely stiffeners, test sockets, hand lids and related accessories.
While locally based, the Group’s products are exported for the most part to various international markets primarily in Europe and the United States ( US), with the US market constituting almost 73 per cent of FoundPac’s sales in FYE2016.
The group has worked with a number of well- known established electronic companies over the years, including Broadcom Corporation, which is a US fabless semiconductor company.
Lee further shared, “In light of the positive prospects for the growth of the semiconductor industry globally, thanks in part to the continued increase in adoption of mobile devices and the Internet of Things,
“I believe the time is right to take advantage of FoundPac’s established track record, to steadily expand our market share in major markets including Milan, Italy and California in the US, where we have plans to set up new sales offices.
“Concurrently, we plan to strengthen our current capabilities through the setting up of a dedicated Design & Development team which will be focused on product development.
“To further stabilise our revenue generation the Group is also looking to diversify our customer base to include enduser industries like those in the automotive industry.”
TA Securities Holdings Bhd is acting as the Company’s Principal Adviser, sole Underwriter and Placement Agent for the IPO exercise.