Overweight on consumer sector as sentiment remains healthy
KUCHING: The ‘overweight’ call on the consumer has been retained, AmInvestment Bank Bhd (AmInvestment Bank) says, noting that downside risks which may prompt a review on the rating would be the weakening of the ringgit and sluggish improvement to economic fundamentals.
AmInvestment Bank maintained ‘overweight’ on the consumer sector as the research firm expected consumer sentiment to remain healthy.
“The recent consumerfriendly initiatives such as the reintroduction of petrol subsidy, capping of the electricity tariff and introduction of public transport subsidies have contained the problem of rising cost of living and effectively put more money back into the pockets of consumers,” the research firm said.
“The substitution of the goods and services tax ( GST) with the sales and services tax (SST) is a net positive to consumers as the SST has a narrower scope compared with the GST.”
According to AmInvestment Bank, the improved consumer sentiment is manifested in the uptick in the Consumer Sentiment Index as measured by the Malaysian Institute of Economic Research (MIER), where the index has recovered beyond the 100-point confidence threshold after three years of a low sentiment trend.
“We believe the positive trend in consumer sentiment will be sustained as consumers become more confident of the government with expectations of a more rakyatcentric government policies, better governance and transparency.”
It projected private consumption to grow at 6.5 per cent year on year ( y- o-y) on the back of a healthy labour market as well as stable inflation. The downside risks which may prompt AmInvestment Bank to review its call for the sector include the weakening of the ringgit against the US dollar (2019 house assumption average: RM4.12). The research firm noted that Berjaya Food Bhd ( Berjaya Food) and Padini Holdings Bhd ( Padini) are beneficiaries of a stronger ringgit.
“Half of Berjaya Food’s raw material is purchased in US dollar while 70 per cent of Padini’s raw material is sourced from China.”
Another downside risk would be the sluggish improvement to economic fundamentals, leading to a derating of the sector.
“A sluggish recovery in economic fundamentals such as high operational costs and a weak ringgit may not see consumers fully benefitting from savings tied to the SST reintroduction and consumer-friendly measures, thereby dampening the recovery in consumer sentiment.”